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Southern  Branch 
of  the 

University  of  California 

Los  Angeles 

Form  L    I 

HJ 


SKETCH 


AMERICAN  FINANCES 

1789-1835 

BY 

JOHN    WATTS    KEARNY 


NEW  YORK  AND  LONDON 

G.    P.    PUTNAM'S    SONS 

2Efje  l^nicka-bocker  Press 

1887 


OOlOfl 


Copyright,  1887, 
By  G.  p.  PUTNAM'S  SONS. 


Press  of 
G.  P.  Putnam's  Sons 

New  York 


PREFACE. 


How  we  may  best  manage,  and  most  speed- 
ily pay  off,  our  great  public  debt,  will  practically 
be  a  vital  question  in  American  politics  for  a 
long  time  to  come.  Every  year  its  importance 
is,  through  the  medium  of  taxation  and  sur- 
plus revenue,  brought  home  to  all  classes  and 
to  every  species  of  industry ;  while  at  the 
same  time  any  lack  of  wisdom  or  experience 
.--•;  in  dealing  with  this  central  issue  is  sure  to 
tH  be  felt  in  the  wide  circumference  of  the  rest 
of  our  public  questions.  A  similar  inquiry 
held  a  dominant  place  in  our  national  coun- 
cils from  the  year  1789,  the  date  of  the  pres- 
ent Constitution,  down  to  the  year  1835. 
The  financial  history  of  this  period  is  well 
worth  special  study,  because  of  the  signal 
ability  and  sagacity  by  which  the  Government 
brought  its  difficult    problem    to   a   successful 


iv  PREFACE. 

issue.  In  dealing  with  our  existing  debt,  it 
may  therefore  be  not  witliout  utility  to  trace, 
in  a  short  review,  the  growth  of  our  national 
experience  in  finance  during  that  time, 
whether  as  manifested  in  its  prevailing  ideas, 
or  as  embodied  in  actual  legislation. 


CONTENTS. 


CHAPTER   I. 

PACE 

Settlement  of  the  Revolutionary  War  Debt    .         i 


CHAPTER   H. 

Revenue,  Expenditure,  and  the  Sinking  Fund  .        45 

CHAPTER   in. 

The  War  of  1812.  —  Increase  of  the  Public  Debt. 

—  Financial  Embarrassments     .       .       .       .        -j^ 

CHAPTER   IV. 

Peace  with  Great  Britain.  —  The  Protective 
Tariff.  —  Extinguishment  of  the  Public 
Debt 1 1 1 


AMERICAN    FINANCES. 

1789-1835 


CHAPTER    I. 

SETTLEMENT  OF  THE  REVOLUTIONARY  WAR  DEBT. 

Our  present  Constitution  owes  its  origin  to 
the  financial  embarrassments  of  the  Govern- 
ment formed  under  the  Articles  of  Confede- 
ration. That  Government  had  to  depend  for 
its  revenue  upon  the  States,  by  making  requi- 
sitions upon  them  in  their  integral  and  sover- 
eign capacity.  Under  this  system,  however, 
there  existed  no  power  to  enforce  these  requi- 
sitions ;  and  hence  when  the  States,  some- 
times by  default  and  sometimes  by  refusal, 
failed  to  pay  their  respective  quotas  into  the 
common  treasury,  the  Government  found 
itself  reduced  to  bankruptcy.  There  were  no 
funds  for  its  own  support ;  the  interest  upon 
the  loans  which  had  been  contracted  both  at 
home   and   abroad   on   account    of   the  war  of 


2  AMERICAN  FINANCES, 

the  Revolution  remained  unpaid ;  and  fresh 
infractions  of  treaty,  and  financial  obligations, 
were  daily  bringing  deeper  humiliation  upon 
the  country. 

To  devise  some  remedy  for  this  most  dis- 
astrous condition  of  affairs,  delegates  from  all 
the  States  met  in  convention,  in  Philadelphia, 
in  the  year  1787.  This  body,  as  was  natural 
under  the  circumstances,  was  at  the  outset 
solely  intent  upon  ingrafting  needed  power 
and  vitality  upon  the  existing  Articles  of  Con- 
federation. Their  deliberations,  however,  car- 
ried them  beyond  this  original  purpose,  and 
resulted  finally  in  their  framing  a  new  scheme 
of  government  altogether,  —  the  Constitution 
of  the  United  States.  This  Constitution  was 
ratified  by  the  States,  and  went  into  operation 
on  the  4th  of  March,  1789.  Ample  powers 
were,  in  view  of  recent  experience,  conferred 
upon  the  new  Government,  both  to  secure  its 
own  maintenance,  and  to  provide  for  the  public 
credit. 

Among  the  provisions  of  this  Constitution 
was  one  to  the  effect  that  all  debts  for  which 
the  United  States  had  become  liable  as  a  con- 
federation, as  well  as  every  agreement  entered 


J78g  - 1833.  3 

into  by  them,  were  now  made  valid,  by  express 
terms,  against  the  United  States. 

The  total  amount  which  had  thus  been  for- 
mally assumed  as  public  debt,  was  estimated, 
with  principal  and  arrearages  of  interest  to- 
gether, to  reach  the  sum  of  ^54,124,464.56,  and 
became  thenceforth  distinguished  and  known 
under  the  names  of  foreign  debt  and  domestic 
debt.  The  foreign  debt  summed  up  $11,710,- 
378.62,  and  resolved  itself  into  (i)  loans  ob- 
tained from  private  lenders  in  Holland,  (2) 
sums  of  money  furnished  from  time  to  time  by 
the  King  of  France,  and  (3)  a  small  amount  due 
to  Spain. 

Our  country  as  a  borrowing  power  (under 
the  guaranty,  as  will  be  hereafter  seen,  of  the 
King  of  France)  was  first  introduced  into  Hol- 
land in  the  year  1781.  John  Adams,  American 
ambassador  at  the  Hague,  had  received  general 
authority  to  borrow  any  sums  required  for 
necessary  expenses,  and  succeeded  by  his  wise 
management  and  perseverance  in  obtaining 
loans  amounting  to  nine  million  florins,  equal 
to  $3,600,000.  Four  separate  loans  of  this 
description  were  negotiated  by  him,  —  the  first 
in  the  year   1782,  and  the  last  in    1788.     The 


4  AMERICAN  FINANCES, 

rate  of  interest  to  be  paid  on  this  money  was 
fixed  nominally  at  four  and  five  per  cent  per 
annum,  but  the  premiums  and  gratifications 
exacted  by  the  lenders  ran  it  up  in  reality  as 
high  as  seven  per  cent.  The  payment  of  the 
interest  went  on  quite  regularly,  the  money 
coming  directly  out  of  the  proceeds  of  the 
loans.  Indeed,  the  last  two  loans,  each  for  one 
million  florins,  were  expressly  obtained  for  this 
purpose,  and  were  so  pledged.  Meanwhile,  no 
part  of  the  principal  had  been  paid,  the  first 
instalment  thereon  not  falling  due  until  the 
year  1793.  These  several  loans  had  been 
made  reimbursable,  in  equal  payments,  within 
fifteen  years  from  date,  the  first  payment  to  be 
made  in  the  eleventh  year. 

The  French  debt  differed  in  many  respects 
from  the  debt  owing  in  Holland.  In  addition 
to  the  support  of  his  arms  during  the  war  of 
independence,  the  French  king  had  also  ren- 
dered important  pecuniary  assistance.  Between 
the  years  1778  and  1783,  in  addition  to  a  sub- 
sidy of  six  million  livres,  he  had  granted  under 
the  title  of  loans  thirty-four  million  livres,  equal 
to  ^6,296,296.  The  amount  last  mentioned 
was    divided  into  three   parts.     The    first  part 


I78g  -  1S35.  5 

consisted  of  loans  made  previously  to  the  i6th 
of  July,  1782,  amounting  in  all  to  eighteen  mil- 
lion livres.  By  a  contract  between  the  two 
countries  in  relation  to  these  loans,  all  arrears 
of  interest  up  to  that  date,  together  with  any 
interest  that  might  accrue  until  the  conclusion 
of  a  treaty  of  peace,  were  made  a  present  to 
the  United  States  in  token  of  the  king's  friend- 
ship. The  principal  was  made  payable,  with 
five  per  cent  interest  per  annum,  in  ready  / 
money  in^  twelve  equal  parts,  and  at  the  royal 
treasury  in  Paris,  the  first  payment  to  com- 
mence from  the  third  year  after  a  peace  with 
Great  Britain.  The  second  part  was  a  loan, 
made  on  the  5th  of  November,  1781,  of  five 
millions  of  florins,  computed  by  agreement  at 
ten  millions  of  livres.  Strictly  speaking,  this 
was  a  loan  by  the  States-General  of  the  United 
Provinces  of  the  Netherlands  to  the  French 
king,  but  made  in  favor  of  the  United  States, 
the  king  undertaking  to  guarantee  its  payment. 
This  debt  was  to  be  reimbursed  in  Paris,  in 
ten  equal  payments  at  four  per  cent  per  annum. 
And  in  order  that  the  king  of  France  might  be 
enabled  to  fulfil  his  own  obligations  in  regard 
to  it,  the  first  of  these  payments  was  made  due 


6  AMERICAN  FINANCES, 

on  the  5  th  of  November,  1787.  The  third  part 
was  also  a  single  loan  of  six  millions  of  livres, 
bearing  interest  at  five  per  cent.  Its  repay- 
ment was  fixed  within  the  period  1797- 1802, 
both  years  inclusive. 

These  engagements  with  France  the  old 
Congress  had  found  itself  unable  to  fulfil  ; 
although  prompt  payment,  owing  to  the  low 
condition  of  that  country's  finances  in  1787, 
when  the  first  instalments  of  the  principal  of 
the  debt  became  due,  was  especially  rtecessary. 
The  arrears  accumulating  after  this  fashion 
swelled  the  amount  of  principal  and  interest 
due  to  France  at  the  close  of  the  year  1789  to 
nearly  three  millions  of  dollars.  As  there  was 
no  abatement  in  their  financial  difficulties,  the 
double  motive  of  gratitude  and  justice  urged 
the  United  States  to  begin  without  delay  to 
reimburse  the  French  debt. 

Negotiations  were  accordingly  opened  at 
Amsterdam  and  Antwerp  for  the  purpose  of 
borrowing  money  upon  the  credit  of  the  United 
States.  At  first  some  popular  objections  were 
raised  against  negotiating  new  loans  abroad ; 
but  any  other  course,  if  not  altogether  imprac- 
ticable, seemed   at   least    to   be   unwise.     The 


1789-1835.  7 

supply  of  money  at  home  was  too  limited  for 
the  pressing  needs  of  the  Government,  either 
with  respect  to  amount,  or  to  the  length  of  time 
for  which  it  could  be  borrowed.  Even  had  the 
home  market  been  able  to  furnish  the  funds, 
the  drain  upon  its  cash  for  remittance  to 
France  would  have  been  ruinous.  Moreover, 
either  plan  amounted  to  the  same  thing  in  the 
end  ;  as  the  money  of  foreigners  would  have 
been  brought  over  here  to  be  subscribed  to  a 
domestic  loan,  or  to  be  invested  in  the  stock. 
This  would  have  induced  a  higher  rate  of 
interest ;  and  by  this  means  the  specie  of  the 
country,  which  did  not  at  the  time  exceed  five 
million  dollars,  would  have  been  carried  away 
all  the  faster. 

Eight  loans  were  obtained  in  Holland, 
amounting  in  all  to  23,500,000  florins,  which, 
at  forty  cents  per  florin  (the  treasury-rate  of 
exchange),  gave  the  sum  of  $9,400,000.  The 
first  of  these  loans  was  effected  on  Feb.  i, 
1790,  and  the  final  one  on  the  loth  of  April, 
1794.  The  highest  rate  of  interest,  counting  in 
extra  charges  along  with  the  nominal  interest, 
was  a  fraction  more  than  five  and  a  half  per 
cent ;    while   the    lowest  actual  interest  was   a 


8  AMERICAN  FINANCES, 

fraction  less  than  four  and  a  half  per  cent. 
These  conditions  were  quite  as  favorable  as 
granted,  at  the  time,  to  any  other  borrowing 
power.  The  proceeds  of  the  loans  here  spoken 
of  were  applied  to  paying  the  arrears  of  interest 
on  the  foreign  debt,  together  with  the  instal- 
ments of  the  principal  then  due;  and  also  in 
providing  for  some  other  engagements  and 
contracts  respecting  it  which  availed  to  the 
public  benefit. 

Before,  however,  these  financial  dispositions 
were  fully  matured  and  settled,  more  than  a 
year  had  been  suffered  to  elapse ;  so  that  on 
the  4th  of  August,  1790,  the  time  when  the 
laws  were  enacted  for  carrying  them  out,  the 
arrears  of  principal  and  interest  had  largely 
increased.  Happily,  matters  were  being  accel- 
erated in  the  interim  by  the  sagacious  action 
of  Mr.  William  Short,  the  financial  agent  of 
the  United  States  in  Europe.  Foreseeing  the 
wants  of  the  Government,  that  gentleman  had, 
in  the  month  of  February,  previous  to  the 
passage  of  the  Funding  Act,  entered  into  a  pro- 
visional agreement  for  a  loan  of  three  millions  of 
florins  in  Amsterdam.  This  loan  was  accepted 
on  account  of  the  Government  on  the  25th  of 


jySg  -  JS35.  g 

August  following,  and  out  of  it  a  first  payment 
was  made  to  France  early  in  December.  Other 
payments  succeeded  each  other  at  short  inter- 
vals, so  that  by  September,  1792,  accounts 
were  adjusted  between  the  two  countries.  At 
that  time,  the  policy  began  to  be  adopted  of 
paying  the  instalments  in  advance,  as  such  a 
course,  it  was  believed,  would  tend  to  revive 
the  friendly  feelings  of  France,  already  weak- 
ened by  previous  breaches  of  faith.  But,  from 
want  of  confidence  in  the  stability  of  that 
Government,  this  policy  was  soon  abandoned. 
The  regular  payments  continued  to  be  made 
promptly  up  to  the  31st  of  December,  1795. 
The  balance  of  the  debt  then  remaining  unpaid 
was,  under  the  inducement  of  an  increase  of 
interest,  exchanged  for  domestic  securities, 
created  for  the  purpose,  at  the  rate  of  18. 1 5  cents 
per  livre,  the  par  value  of  the  precious  metals 
as  agreed  upon  between  the  two  countries. 

Under  this  arrangement,  certificates  of  do- 
mestic debt  were  issued  by  the  United  States, 
in  favor  of  an  agent  duly  authorized  by  the  Com- 
mittee of  Public  Safety  of  the  National  Con- 
vention of  France,  to  the  amount  of  ^2,024,900; 
^1,848,900  of  this  sum  bore  interest  at  five  and 


lO  AMERICAN  FINANCES, 

a  half  per  cent,  and  the  remaining  $176,000 
four  and  a  half  per  cent.  In  this  final  settle- 
ment was  also  included  a  loan  of  one  million 
livres  from  the  farmers-general,  obtained  in  the 
year  1777.  Thus  was  closed  the  account  with 
the  Republic  of  France,  The  French  debt,  by- 
means  of  re-loans,  had  now  been  transferred  to 
Amsterdam  and  the  United  States. 

Out  of  the  proceeds  of  the  Dutch  loans  was 
likewise  discharged  the  small  debt  due  to  Spain, 
as  also  the  claims  for  pay  and  service  of  the 
foreign  officers  who  had  enlisted  in  the  army 
during  the  late  war,  amounting  to  $186,988.23. 
The  Spanish  debt  originated  in  this  wise  :  in 
the  year  1780,  Congress,  then  under  the  press- 
ure of  immediate  necessity,  had  sold  bills  of 
exchange  on  the  American  minister  at  Madrid 
to  the  amount  of  five  hundred  thousand  dollars. 
It  was  hoped  that  these  bills,  which  were  at 
long  dates,  would  be  met  by  a  loan  from  Spain. 
On  their  presentation  for  payment,  however, 
the  Spanish  court  refused  to  advance  the 
money ;  and  only  after  repeated  solicitation  was 
that  government  finally  persuaded  to  grant  a 
loan  of  $174,011,  to  be  payable  within  three 
years,  at  five  per  cent  interest.     This  debt  was 


irSg-iSjJ.  ir 

paid  in  August,  1793,  at  which  time  it  had 
amounted,  with  arrears  of  interest,  to  some- 
thing more  than  $268,000. 

The  management  of  the  domestic  debt  gave 
rise  to  more  serious  difhculties  than  the  foreign 
debt.  On  the  demise  of  the  late  Government, 
this  debt  amounted  to  $42,414,085.94.  Out  of 
this  total,  $27,383,917.74  were  represented  by- 
certificates  which  had  been  issued  on  account 
of  the  principal  of  the  debt;  $13,030,168.20, 
in  indents,  went  to  sum  up  the  arrears  of  inter- 
est as  computed  to  Dec.  31,  1790;  and  two 
million  dollars  was  the  estimate  formed  of  the 
unliquidated  portion,  consisting  chiefly  of  Con- 
tinental bills  of  credit.  The  capital  of  the  debt 
was  in  the  nature  of  an  annuity  at  six  per  cent 
per  annum,  redeemable  at  the  pleasure  of  the 
Government  by  the  payment  of  the  principal. 
As  to  the  arrears  of  interest,  which  bore  so 
large  a  proportion  to  the  principal  of  the  debt, 
any  immediate  payment  was  not  at  all  practi- 
cable. While  the  very  nature  of  these  claims 
made  them  of  necessity  a  subject  for  construc- 
tion, yet  they  were  entitled  to  the  same  consid- 
eration as  was  given  to  the  principal. 

The  ratification  of  the  new  Constitution  by  a 


12  AMERICAN  FINANCES, 

number  of  the  States  sufficient  to  secure  an 
organized  government,  exerted  a  timely  and 
restorative  influence  upon  the  pubHc  credit. 
The  belief  became  general  that  now  some  effec- 
tive provision  would  be  made  for  the  payment 
of  the  domestic  debt.  That  it  was  just  and 
valid  had  never  been  questioned.  It  was  des- 
ignated "the  price  of  liberty,"  and  the  good 
faith  and  honor  of  the  country  had  been  re- 
peatedly and  solemnly  pledged  for  its  payment. 
The  late  Government  had  made,  it  is  true,  ear- 
nest and  laudable  efforts  towards  fulfilling  its 
obligations  ;  but  these  efforts  were  defeated  by 
the  more  urgent  necessities  of  the  war,  as  well 
as  by  its  own  inexperience  in  finance,  not  to 
speak  of  the  embarrassments  of  a  defective  con- 
stitution during  the  last  seven  years  of  its 
existence.  Now  that  the  new  Government  had 
competent  powers  to  command  the  resources 
of  the  whole  country,  the  confidence  of  credit- 
ors began  to  revive.  And  this  confidence  that 
some  action  would  be  taken  in  their  behalf, 
received  new  strength  and  sanction  on  the 
adoption  by  the  House  of  Representatives,  at 
the  close  of  the  first  session  of  Congress  in 
September,  1789,  of  a  resolution  declaring  that 


1789-1835-  13 

they  considered  an  adequate  provision  for  the 
support  of  the  public  credit  to  be  a  matter  of 
high  importance  to  the  national  honor  and 
prosperity.  A  rapid  increase  took  place  in  the 
market  value  of  the  public  securities.  They 
had  been  selling  for  no  more  than  fifteen  and 
twenty  cents  upon  their  nominal  value.  But 
from  January,  1789,  to  November  of  the  same 
year,  they  rose  thirty-three  and  a  third  per 
cent ;  and  by  the  following  January  they  had 
risen  fifty  per  cent  more. 

On  the  4th  of  August,  1790,  was  passed  an 
Act  knov/n  as  the  Funding  Act.  This  was  a 
plan  for  remodelling  the  domestic  debt,  and  it 
grew  out  of  the  absolute  necessity  of  bringing 
the  Government's  liabilities  within  reach  of  its 
probable  income.  Were  the  Government,  with 
its  current  expenses,  — always  liable  to  increase 
from  contingent  demands,  —  to  attempt  to  pay 
the  interest  of  the  entire  mass  of  the  public 
debt  on  the  basis  contracted  for,  it  would  have 
to  control  a  revenue  of  not  less  than  five  mil- 
lions of  dollars  annually.  To  undertake  to 
secure  this  sum  by  means  of  taxation,  would,  it 
was  apprehended,  put  a  very  great  strain  on 
the   nascent    capacity   of    the    country,    as    its 


14  AMERICAN  FINANCES, 

ability  to  bear  taxation  was  as  yet  practically 
untried.  In  lieu,  therefore,  of  the  original  basis 
contracted  for,  a  provision  for  the  debt  was 
made  under  the  Funding  Act  on  a  basis  calcu- 
lated at  four  per  cent.  The  measure  was  an 
appeal  to  the  intelligence  of  the  creditors,  and 
to  their  interest  as  well,  in  favor  of  an  arrange- 
ment which  was  considered  to  be  based  upon  a 
real  and  fair  equivalent.  This  re-organization 
of  the  old  debt  made  it  easier  to  be  provided 
for,  while  at  the  same  time  it  offered  unques- 
tionable security  for  the  strict  fulfilment  of  the 
new  engagements. 

Under  the  provisions  of  the  Funding  Act,  a 
loan  was  now  opened  for  the  full  amount  of  the 
domestic  debt,  the  subscriptions  thereto  being 
made  payable  in  the  certificates  that  had  been 
previously  issued  for  it.  For  every  sum  sub- 
scribed in  the  principal  of  the  debt,  two  certifi- 
cates were  issued,  — one  of  them  for  an  amount 
equal  to  two-thirds  of  the  subscription,  bearing 
interest  (payable  quarterly)  at  the  rate  of  six 
per  cent  per  annum  from  the  ist  of  January, 
1791  ;  the  other  for  the  remaining  third  of  the 
sum,  bearing  the  same  interest  after  the  year 
1800.     The  debt  in  this  new  shape  was  subject. 


1789-1835-  15 

upon  the  accruing  of  the  interest,  to  redemption 
in  such  payments  as  were  not  to  exceed  in  a 
single  year,  on  account  of  both  principal  and 
interest,  the  proportion  of  eight  dollars  upon  a 
hundred  dollars.  The  arrears  of  interest,  com- 
puted to  the  last  day  of  December,  1790,  were 
fundable,  dollar  for  dollar,  into  a  stock  redeem- 
able at  the  pleasure  of  the  Government,  and 
bore  interest  at  three  per  cent  per  annum,  pay- 
able quarterly  from  the  ist  of  January,  1791. 

Lest  it  might  be  imputed  that  this  new 
measure  acted  upon  the  necessities  of  the  cred- 
itors, and  so  carried  with  it  an  appearance  of 
coercing  them,  the  change  in  the  form  of  the 
debt  was  left  to  their  own  choice.  To  this  end, 
a  solemn  legislative  declaration  was  made  in 
protection  of  the  rights  of  any  creditors  who 
did  not  think  proper  to  subscribe  to  the  new 
loan,  and  which  stated  that  those  rights  should 
in  no  wise  be  altered,  abridged,  or  impaired, 
and  that  their  contracts  were  to  remain  in  full 
force  and  validity.  An  appropriation  was  made 
for  paying  the  non-subscribing  creditors  an 
interest  on  their  respective  claims  equal  to  the 
interest  payable  to  the  subscribing  creditors. 
The  sole  condition  attached  to  their  payment 


1 6  AMERICAN  FIaXANCES, 

was  the  return  of  the  old  certificates  in  ex- 
change for  new  ones  of  like  tenor,  or  their 
registration.  This  was  necessary  as  a  protection 
against  fraud,  and  also  as  a  help  towards  ascer- 
taining as  far  as  possible  the  extent  of  the  pub- 
lic debt.  The  option  of  separating  the  arrears 
of  interest  from  the  principal,  and  funding  them 
at  three  per  cent,  was  also  given  the  creditors. 
But  it  was  well  understood  that  no  more  was  to 
be  done  for  the  non-subscribers  than  was  posi- 
tively due  to  good  faith. 

Under  the  new  form  now  assumed  by  the 
public  debt,  the  Government  relinquished  the 
right  of  redeeming  it  at  pleasure,  which  it  could 
previously  use  to  its  advantage  whenever  there 
was  a  fall  in  the  market-rate  of  interest.  This 
surrender  served  to  give  to  the  debt  a  more 
fixed  character.  Again,  instead  of  the  interest 
being  paid,  as  originally  provided,  at  the  end  of 
the  year,  and  only  at  the  treasury,  it  was  now 
to  be  paid  in  quarterly  payments  and  at  thirteen 
different  places,  which  made  it  equivalent  to 
6.15  per  cent  per  annum  in  lieu  of  the  stipu- 
lated rate  of  six  per  cent.  Furthermore,  by  the 
original  contract,  only  an  annual  provision  for 
the  interest  was  required  ;  whereas  the  Funding 


1789-1835-  ly 

Act  appropriated  and  pledged  funds  for  both 
the  interest  and  the  principal,  and  this  appro- 
priation was  made  co-extensive  with  the  dura- 
tion of  the  debt. 

Considerable  intrinsic  value  now  accrued  to 
the  public  debt  in  its  new  form  from  these 
stipulations.  Nor  is  this  statement  negatived 
by  the  fact  of  the  reduction  of  the  interest 
from  six  per  cent  to  four  per  cent,  —  a  reduction 
which  was  considered,  at  the  time,  reasonable 
and  necessary,  inasmuch  as  it  was  made  on  a 
conscientious  estimate  of  the  resources  of  the 
country.  This  estimate,  we  now  know,  was  far 
below  the  value  of  their  subsequent  growth 
and  expansion.  And  it  is  this  growth  in  the 
national  finances  beyond  the  most  sanguine 
expectations,  which  might  hinder  the  measure, 
without  adverting  to  this  fact,  from  being 
appreciated  in  our  day  at  its  full  value.  The 
very  change  in  the  mode  of  appropriation 
formed  of  itself  a  valuable  consideration,  and 
this  was  evidenced  at  the  time  by  the  opposition 
of  a  strong  party  to  the  funding  of  the  debt 
upon  terms  so  advantageous  to  the  creditors  as 
those  offered.  This  party  contended  that  a 
discrimination    should    be    made   between    the 


1 8  AMERICAN  FINANCES, 

possessors  of  the  certificates  by  purchase,  and 
the  original  holders ;  as  the  latter,  under  the 
pressure  of  need,  had  had  to  sell  their  certifi- 
cates at  a  very  great  discount.  The  permanent 
had  this  advantage  over  the  annual  provision  ; 
namely,  that  once  it  was  made,  it  was  absolutely 
safe,  at  least  until  all  the  three  departments  of 
the  Government  should  concur  in  revoking  the 
solemn  pledge  given  to  the  creditors.  The 
annual  provision,  on  the  other  hand,  was  always 
liable  to  be  defeated  by  the  prevailing  passions, 
prejudices,  or  intrigues  of  a  majority  of  but  a 
single  branch  of  the  Government.  Some  of  the 
creditors  were  at  first  for  insisting  on  better 
terms,  and  in  a  memorial  to  Congress  entered 
their  protest  against  the  commutation  as  a 
breach  of  faith,  particularly  in  view  of  the  favor 
shown  to  the  foreign  creditors.  Nevertheless, 
seeing,  on  the  whole,  that  there  was  now  secured 
to  them  a  permanent  and  reliable  settlement  of 
their  claims,  all  agreed  to  accept  the  modifica- 
tion proposed. 

The  books  for  receiving  subscriptions  were 
opened  in  all  the  States  on  the  ist  of  October, 
1790,  and  were  closed  on  the  last  day  of  the 
year   1797.      During   this   interval,  nearly  the 


i78g-i835.  19 

whole  of  the  old  debt  was  subscribed  to  the  new 
loan  :  there  were  a  few,  however,  who  still  held 
back  from  funding  their  certificates,  although 
they  had  registered  them.  All  evidences  of 
debt  presented  after  the  loan  was  closed,  and 
previous  to  the  12th  of  June,  1799,  were  paid 
in  specie,  at  their  nominal  value  if  registered, 
and  at  their  market  value  if  not  registered. 
All  that  failed  to  be  presented  within  this 
defined  period,  became,  by  the  fact,  forever 
barred  from  settlement  or  allowance.  The  total 
amount  of  domestic  debt  that  was  funded  was 
$41,963,561.98;  $19,622,505.52  of  this  amount 
were  in  six-per-cent  stock;  $9,416,382.92  in 
deferred  stock;  and  $12,924,673.54  in  three-per- 
cent stock.  The  difference  between  the  amount 
actually  funded  and  the  amount  at  first  com- 
puted to  be  outstanding,  was  attributable  not  so 
much  to  the  Act  of  Limitation  as  to  the  loss  or 
casual  destruction  of  certificates  throughout  a 
period  of  more  than  twenty  years.  To  this 
chief  cause  may  be  added  the  errors  made  in 
the  estimates  themselves  ;  as,  for  instance,  in  the 
old  emission  bills,  which,  while  computed  at 
forty  for  one,  were  actually  funded  at  the  rate 
of  one  hundred  for  one.     Many  loan-certificates, 


20  AMERICAN  FINANCES, 

also,  which  were  thought  to  have  been  already- 
issued  for  the  public  service,  were  subsequently 
returned  to  the  Treasury,  and  cancelled. 

An  important  feature  in  the  general  plan  for 
re-organizing  the  public  debt  was  the  assumption 
by  the  National  Government  of  the  debts  in- 
curred by  the  States  in  support  of  the  war,  and 
which  in  their  nature  and  of  right  were  properly 
a  charge  against  the  United  States.  The  Con- 
gress which  assembled  at  the  commencement 
of  the  war  of  independence,  possessing  no 
defined  powers  of  government,  had  no  right  to 
tax  the  States.  However,  when  an  appeal 
was  made  to  them,  the  States  furnished  money 
and  supplies  according  to  their  ability,  consider- 
ing these  contributions  as  loans  or  advances  for 
the  common  weal.  By  the  adoption  of  the 
Articles  of  Confederation  in  the  year  1781,  no 
practical  change  was  made  in  the  mode  of 
carrying  on  the  war.  The  public  contracts  still 
continued  to  be  turned  over  to  the  several 
States  for  settlement,  a  course  which  was  not 
only  a  relief,  but  a  necessity,  to  a  government 
with  an  empty  treasury.  The  main  obligations 
thus  undertaken  by  the  States  were  that  they 
should  settle  the  arrears  of  pay  of  their  respec- 


j^Sg-iSjj.  21 

tive  lines  of  the  army,  as  well  as  the  claims  of 
their  own  citizens,  many  of  whom  already  held 
the  certificates  of  the  commissioners  or  other 
officers  of  the  United  States  for  supplies  fur- 
nished, or  services  rendered.  Now,  these  obliga- 
tions the  States  either  paid  in  their  own  bills  of 
credit,  or  substituted  their  own  State  certificates 
for  the  certificates  of  the  United  States.  Such 
creditors,  therefore,  not  only  had  never  been 
asked  to  consent  to  this  transfer  of  their  claims 
from  the  United  States,  but  had  besides  re- 
ceived no  actual  payment,  but  only  promises  of 
payment,  which  remained  still  unredeemed. 
Here  arose  a  conflict  between  justice  and  gen- 
erosity. Each  State  from  the  first  was  bound 
for  its  just  proportion  of  the  expenses  of  the 
war :  any  thing  advanced  in  excess  of  this,  of 
course,  gave  the  State  a  claim  to  remuneration. 
Until,  however,  the  extent  of  these  excesses 
had  been  ascertained,  the  United  States  were 
not  strictly  obligated  to  assume  their  indebted- 
ness. But,  on  the  other  hand,  it  would  have 
been  impolitic,  and  even  invidious,  to  make  a 
discrimination  between  equally  meritorious  pub- 
lic creditors,  by  providing  for  one  class  out  of 
the  ample  national    resources,  and  leaving  the 


22  AMERICAN  FINANCES, 

Other  to  look  for  jiayment  to  the  States,  which 
were  already  overburdened  with  debts.  Under 
these  circumstances,  the  debts  of  the  individual 
States  were  assumed  by  Congress. 

The  debts  of  all  the  States  taken  together 
were  found  to  amount  to  about  $21,500,000. 
For  the  full  sum,  a  loan  was  opened  at  the  same 
time  and  the  same  places  as  already  prescribed 
for  the  domestic  debt  ;  and  to  each  State  was 
assigned  a  quota  of  it  about  equal  to  its  esti- 
mated and  still  unpaid  war-debt.  The  sub- 
scriptions were  paid  indiscriminately  in  the 
certificates  of  the  principal  and  of  the  interest 
(this  latter  computed  to  the  31st  of  December, 
1 791)  of  the  debts  of  the  respective  States, 
issued  prior  to  January,  1790,  for  services  or 
supplies  furnished  for  the  prosecution  of  the 
late  war.  Each  person  subscribing  received 
three  certificates,  —  one  for  a  sum  equal  to  four- 
ninths  of  the  subscribed  sura,  with  interest  at 
six  percent  per  annum  from  the  ist  of  January, 
1792  ;  another  for  two-ninths  of  the  subscribed 
sum,  to  bear  interest  after  the  year  1800,  at  six 
per  cent ;  and  the  third  certificate  for  the 
remaining  three-ninths,  bearing  an  interest  of 
three  per  cent  from  the  first  of  January,  1792. 


1789  -  iSjS-  23 

The  interest  on  these  several  certificates  was 
payable  in  the  same  manner,  and  the  principal 
was  made  subject  to  a  like  mode  of  redemption, 
as  the  correspondent  stock  created  by  the  loan 
funding  the  domestic  debt. 

The  subscriptions  to  the  funded  assumed  debt 
were  closed  on  the  ist  of  March,  1793.  Out 
of  the  total  amount  which  had  been  assigned 
to  the  States,  only  $18,271,814.74  had  been  sub- 
scribed. This  difference  is  chiefly  accounted 
for  by  the  fact  that  the  sums  assumed  for  some 
of  the  States  were  in  excess  of  the  actual 
amount  of  their  outstanding  debts.  In  some 
instances,  too,  the  debt  was  of  such  a  kind  as 
to  preclude  its  being  accepted,  —  in  the  case,  for 
example,  of  certificates  issued  after  the  ist  of 
January,  1790.  A  number  of  persons,  besides, 
not  noting  the  limitation  of  time  for  receiving 
subscriptions,  or  from  entire  ignorance  of  it, 
lost  thereby  the  opportunity  of  subscribing. 

The  debts  of  the  States  did  not,  however,  fur- 
nish any  criterion  of  their  relative  contributions 
to  the  war.  Some  of  them,  escaping  more  than 
others  the  ravages  of  actual  warfare,  had  there- 
fore been  able,  by  means  of  current  taxation  and 
their  ample  resources,  to  meet  their  expenses, 


24  AMERICAN  FINANCES, 

and  reduce  their  debt ;  while  those  which  had 
suffered,  and  were  therefore  forced  to  make  all 
the  heavier  drafts  upon  their  credit,  found  them- 
selves exhausted  when  the  war  ceased,  and  ill 
prepared  to  face  their  liabilities.  These  grave 
inequalities  in  their  financial  condition,  the 
result  of  a  random  distribution  of  the  burdens 
of  the  war,  it  was  now  necessary  to  correct  ; 
and  accordingly  the  assumption  of  the  State 
debts  was  followed  by  the  appointment  of  a 
board  of  three  commissioners  for  the  settlement 
of  the  accounts  between  the  United  States  and 
the  individual  States. 

Under  the  arrangement  effected  by  this  com- 
mission, the  States  were  charged  with  all 
advances  made  to  them  by  the  United  States, 
including  the  amount  of  assumed  debt,  with 
interest  computed  to  the  last  day  of  the  year 
1789.  The  bills  of  credit,  of  which  the  ad- 
vances principally  consisted,  were  liquidated 
according  to  an  established  scale  on  a  specie 
value  at  the  date  of  each  of  the  advances. 
On  the  other  hand,  the  States  were  credited 
with  their  individual  expenditures,  whether 
of  moneys  paid,  or  supplies  furnished,  to  the 
United  States.     This  total  of  credit  was  liqui- 


dated  to  a  specie  value  also,  with  interest  to 
the  last  day  of  the  year  1789.  The  expendi- 
tures on  the  part  of  the  States  having  been 
found  to  exceed  the  advances  from  the  United 
States  by  over  seventy-seven  and  a  half  millions 
of  dollars,  an  apportionment  of  this  excess  was 
made  among  the  States  according  to  the  rule 
for  apportioning  representatives  and  direct 
taxes,  as  prescribed  by  the  Constitution  of  the 
United  States.  In  order  to  insure  perfect 
equalization  among  the  States  in  regard  to 
their  contributions  in  support  of  the  war,  it 
was  necessary  that  the  amount  of  excess 
apportioned  to  each  State,  added  to  the  ad- 
vances it  had  received  from  the  United  States, 
should  exactly  correspond  to  the  war  expenditure 
of  that  State.  This  was  the  standard  of  adjust- 
ment. In  every  State  in  which  the  expendi- 
tures fell  short  of  this  amount,  a  balance  equal 
to  the  difference  became  due  to  the  United 
States  ;  and  where  any  of  them  exceeded  it, 
the  balance  was  in  that  case  due  the  State  from 
the  United  States.  The  first  were  the  debtor 
States,  the  latter  the  creditor  States. 

The  debtor  States  were  New  York,  Pennsyl- 
vania, Delaware,  Maryland,  Virginia,  and  North 


26  AMERICAN  FINANCES, 

Carolina.  The  creditor  States,  New  Hamp- 
shire, Massachusetts,  Rhode  Island,  Connecti- 
cut, New  Jersey,  South  Carolina,  and  Georgia. 

The  balances  due  to  the  creditor  States 
amounted  to  ^3,517,584,  and  were  funded  by 
the  United  States  in  accordance  with  the  law 
providing  for  the  settlement  of  accounts. 
These  balances  stood  on  the  same  terms  as  the 
other  part  of  the  domestic  debt,  except  that 
the  stock  was  not  transferable.  The  purpose 
of  this  restriction  was  to  keep  as  much  of  the 
debt  as  possible  out  of  the  hands  of  foreigners, 
who  were  already  holders  of  a  large  portion  of 
it.  But  it  was  soon  found  necessary  to  suspend 
it,  so  as  to  enable  the  States  to  pay  their  re- 
maining creditors.  The  balances  proper  were 
funded  in  six-per-cent  stock,  two  thirds  of  the 
amount  to  bear  interest  at  once,  the  other 
third  only  after  the  year  1800.  Each  State 
also  received  interest  upon  its  balance  at  the 
rate  of  four  per  cent  per  annum,  dating  from 
the  last  day  of  December,  1789,  to  the  last 
day  of  the  same  month,  1794.  And  this 
interest,  which  amounted  to  1^703,5 16.80,  was 
funded  in  three-per-cent  stock.  The  annual 
interest  on   the  whole,    except   as    to   the   de- 


ferred  stock,  began  to  accrue  on  the  ist  of 
January,  1795. 

The  sum-total  of  debt  undertaken  in  behalf 
of  the  States  amounted  to  $22,492,915.54.  By 
the  assumption  proper,  the  public  debt  of  the 
country  at  large  was  not  augmented.  This 
measure  only  transferred  a  portion  of  it,  which 
was  thereby  lifted  off  the  States  in  their  sepa- 
rate capacity,  and  placed  upon  them  in  their 
national  or  united  capacity.  In  this  shape,  the 
General  Government  was  able  to  manage  and 
provide  for  it ;  and  it  could  do  it  more  efficiently 
than  would  have  been  possible  under  the  con- 
flicting systems  and  less  ample  resources  of  the 
States.  For  it  must  be  remembered  that  the 
States  had  now  vested  in  the  Federal  Govern- 
ment a  concurrent  and  superior  power  of  taxa- 
tion ;  and,  moreover,  that,  in  giving  up  their 
right  to  lay  duties  on  imports  and  exports,  they 
had  parted  with  their  most  productive  source 
of  revenue.  In  a  word,  the  assumption  was  a 
measure  devised  for  fixing  the  responsibility  for 
the  payment  of  all  the  debts  arising  out  of 
the  Revolution  upon  the  National  Government, 
where  it  properly  belonged. 

The  case  was  different  with  the  funded  bal- 


28  AMERICAN  FINANCES, 

ances.  Here  there  was  an  actual  increase  of 
debt.  The  United  States,  in  funding  the  bal- 
ances of  the  creditor  States,  acted,  in  reality,  as 
agents  only  in  behalf  of,  and  as  guaranties  for, 
the  debtor  States,  from  which  their  payment 
was  really  due.  But  the  United  States  have 
never  succeeded  in  collecting  the  balances  due 
from  the  debtor  States,  which  would,  as  was 
originally  intended,  have  offset  the  newly 
created  debt.  These  States  were  given  the 
option  of  settling  their  accounts,  either  in 
money  or  in  public  stocks,  or  of  expending  the 
sums  due  upon  the  fortifications  belonging  to 
the  United  States.  This  invitation  was  made 
to  them  in  the  year  1799,  at  the  time  of  a 
threatened  outbreak  with  France.  The  State 
of  New  York  partially  complied  with  it.  With 
this  single  and  unimportant  exception,  nothing 
has  ever  been  recovered  upon  the  balances  of 
the  debtor  States. 

The  funding  of  the  public  debt  on  the  terms 
already  mentioned,  enabled  the  Government  to 
introduce  system  into  the  finances  from  the 
very  beginning.  The  postponement  to  the  ist 
of  January,  1791,  of  the  annual  payment  of 
interest  (all  accruing  to  that  date  being  con- 


1789-1835-  29 

verted  into  new  capital),  afforded  an  opportunity 
of  testing  the  unknown  resources  of  the  coun- 
try in  advance  of  the  necessity  of  a  large 
revenue.  In  other  respects  also,  this  delay  was 
opportune;  for  the  old  Government,  not  pos- 
sessing the  right  to  raise  direct  revenue,  had  no 
fiscal  service.  This  branch,  therefore,  needed 
to  be  organized  from  its  foundation.  Officers 
were  to  be  appointed  all  over  the  country, 
buildings  provided  for  the  transaction  of  busi- 
ness, and  all  other  arrangements  entered  into 
incident  to  the  collection  of  revenue. 

To  aid  in  administering  the  finances,  a 
national  bank,  under  the  name  of  the  Bank  of 
the  United  States,  was  also  chartered,  with  a 
capital  of  ten  million  dollars.  It  was  granted 
the  privilege  of  issuing  notes,  to  be  receivable 
in  all  payments  to  the  United  States  ;  and  the 
Government  likewise  subscribed  to  two  million 
dollars  of  the  stock,  paying  for  it  by  means  of 
a  loan  from  the  bank  of  the  same  amount,  which 
was  reimbursable  in  ten  years  by  equal  annual 
instalments.  The  interest  on  this  loan,  at  six 
per  cent  per  annum,  was  derived  from  the 
dividends  on  the  stock.  As  these  averaged  all 
throusrh    the    duration    of    the    bank's    charter 


30  AMERICAN  FINANCES, 

^W  per  cent,  a  handsome  profit  was  annually 
coming  to  the  Government. 

On  the  4th  of  July,  1789,  a  temporary  tariff 
was  adopted  to  meet  the  immediate  wants  of 
the  Government.  It  was  based  on  the  one 
which,  as  a  federal  tax,  had  been  proposed  to  the 
States  by  the  Continental  Congress,  and  agreed 
to  by  all  but  two.  The  initiatory  expenses 
of  the  Government  being  mainly  on  account  of 
the  current  service,  the  duties  for  the  seven- 
teen months  this  tariff  was  in  force  yielded  a 
surplus  over  appropriations  of  $1,371,430.  A 
large  portion  of  this  sum  was  subsequently 
invested  in  purchases  of  the  public  debt. 

From  the  ist  of  January,  1791,  the  annual 
income  needed  by  the  Government  for  all 
demands  was  $2,839,163,  distributed  as  follows: 
for  the  annual  interest  on  the  foreign  debt, 
$542,600 ;  for  the  interest  on  the  domestic 
debt,  $1,896,563;  and  for  current  expenses, 
$600,000.  In  order  to  provide  this  sum,  an 
average  increase  of  two  and  a  half  per  cent  was 
placed  on  existing  duties.  Moreover,  on  the 
1st  of  January,  1792,  the  date  of  the  interest 
on  the  funded  assumed  debt  becoming  due, 
duties  were   laid  on  spirits  distilled  at   home, 


1789-1835.  31 

while  a  higher  rate  was  then,  too,  put  on  the 
foreign  article.  These  additional  duties  gave 
an  annual  product  of  $800,000,  and  served  to 
raise  the  national  income  to  the  level  of  all 
probable  demands.  All  taxes  and  duties  now 
established  were  to  continue  permanent  as  long 
as  the  debt  lasted.  Moreover,  with  the  single 
exception  of  an  annual  reservation  for  the  Gov- 
ernment of  $600,000,  their  first  proceeds  were 
pledged  and  appropriated  to  paying  the  annual 
interest  of  the  debt.  Congress,  however,  re- 
served the  right  of  substituting  for  these  duties 
others  of  equal  value. 

But  no  sooner  was  this  equilibrium  in  the 
public  accounts  secured,  than  it  was  disturbed 
by  unforeseen  causes,  demanding  a  still  larger 
revenue.  An  expensive  war  with  the  Indians 
of  the  North-West  was  almost  immediately 
thrust  upon  the  Government.  The  Whiskey 
Insurrection  in  Pennsylvania,  growing  out  of 
resistance  to  the  excise  law,  broke  out  in  1794  ; 
and  in  the  same  year,  our  relations  with  Eng- 
land becoming  critical,  the  harbors  were  forti- 
fied, arsenals  and  armories  established,  supplies 
of  arms  and  stores  purchased,  and  new  ships 
built   for  the  navy ;  finally,  a  treaty  at  heavy 


32  AMERICAN  FINANCES, 

cost  had  to  be  purchased  of  Algiers.  To  meet 
these  unexpected  demands  upon  the  Treasury, 
fresh  taxation  had  to  be  resorted  to. 

Apart  from  a  deficit  of  ^526,000,  to  pro- 
vide for  which  some  additional  duties  were  put 
upon  imported  articles  in  May,  1792,  the  year 
1794  was  the  one  of  greatest  embarrassment 
during  this  period.  The  appropriations  in 
that  year  exceeded  those  of  any  former  year 
by  upwards  of  two  and  a  half  millions  of  dol- 
lars ;  while  the  revenue,  by  reason  of  the  in- 
terruptions to  commerce,  was  estimated  to 
fall  off  from  the  receipts  of  previous  years 
^1,300,000.  The  tariff  was  again  increased; 
and  internal  duties  were  laid  upon  carriages, 
refined  sugar,  snuff,  licenses  for  selling  wines 
and  foreign  liquors,  and  property  sold  at  auc- 
tion. Besides  this,  a  prospective  deficiency  of 
cash  in  the  Treasury  by  the  ist  of  April  made 
it  necessary  to  provide  immediately  a  million 
and  a  half  of  dollars.  This  sum  was  raised  by 
a  loan  on  the  new  internal  duties,  pledged  in 
anticipation.  By  the  close  of  the  year,  signs 
of  relief  were  apparent.  In  1795  the  Indians 
made  peace  ;  and  England,  too,  modified  her 
foreign  policy  in  regard  to  neutral  commerce. 


I78g-i835-  33 

The  public  expenditures  were  at  once 
reduced ;  and  soon  there  was  a  well-grounded 
assurance,  on  the  basis  of  the  existing  reve 
nues,  of  a  surplus  of  more  than  a  million  of  dol- 
lars in  the  year  1795,  and  in  succeeding  years 
also.  The  annual  revenue  was  placed  at 
^6,552,300.74;  the  current  annual  expendi- 
ture at  $5,481,843.90;  giving  an  excess  of 
income  of  $1,070,456.84.  Making  allowance 
for  unforeseen  demands  and  for  deficiencies, 
the  latter  sum  was  deemed  a  sufficient  guar- 
anty for  commencing  a  regular  and  immediate 
reduction  of  the  public  debt.  With  this  view, 
the  temporary  tariff  duties,  which  had  been 
imposed  under  the  pressure  of  recent  com- 
plications, foreign  and  domestic,  were  retained 
as  an  addition  to  the  permanent  revenue  ;  and 
the  five  internal  duties,  yielding  a  sum  of 
$380,000,  were  also  continued  in  force  until 
the  1st  of  March,  i8or,  the  year  in  which  the 
interest  on  the  deferred  stock  was  payable. 
Prudence  forbade  the  making  of  any  provis- 
ions beyond  that  date,  as  at  that  time  Con- 
gress could  decide  from  the  actual  condition 
of  things  whether  those  duties  or  any  others 
would  be  required. 


34  AMERICAN  FINANCES, 

There  had  prevailed  from  the  very  outset 
a  paramount  determination  of  lessening  the 
burden  of  the  public  debt  as  soon  as  practi- 
cable. By  the  terms  of  the  Funding  Act,  the 
proceeds  of  the  public  lands  in  the  Western 
territory  were  appropriated  solely  in  redemp- 
tion of  the  debt.  The  fund  from  this  source 
was  set  down  at  between  three  and  four  mil- 
lions of  dollars,  the  estimated  jDrice  of  the 
lands  being  twenty  cents  per  acre.  Again, 
after  ample  provision,  according  to  the  Act, 
had  been  made  for  funding  the  debt,  the  sur- 
plus revenue  to  the  end  of  the  year  1790  was 
set  apart  for  the  purchase  of  any  public  stocks 
which  were  selling  below  their  par  value  in 
the  market. 

The  purchases  made  by  the  use  of  this  sur- 
plus were  doubly  beneficial  at  the  time  ;  for, 
besides  sinking  a  capital  often  more  than  fifty 
per  cent  greater  than  the  sum  expended,  they 
accelerated  the  rise  of  stocks  that  were  in 
great  demand  abroad,  thus  producing  a  clear 
profit  to  the  nation  proportioned  to  the  en- 
hanced price  foreigners  were  obliged  to  pay 
for  their  purchases.  A  loan  of  two  millions 
of   dollars  was  even  authorized  for  the    same 


1789-1835-  35 

purpose,  in  order  to  place  in  the  hands  of 
the  Government  sufficient  means  to  influence 
the  market  whenever  it  was  desirable.  In  the 
first  quarter  of  the  year  1791,  the  six-per- 
cents  sold  at  eighty-two  cents  on  the  dollar ; 
the  three-per-cents  and  the  deferred  stock  at 
forty-two  cents.  As  early  as  the  ist  of  Au- 
gust, the  six-per-cents  had  risen  to  par  value, 
and  the  other  two  stocks  to  sixty  cents  ;  and 
in  the  month  of  January,  1792,  the  former 
commanded  a  premium  of  twenty -five  per 
cent,  and  the  two  latter  as  much  as  seventy- 
five  cents  on  the  dollar.  But  they  all  subse- 
quently declined,  owing  to  the  troubled  state 
of  public  affairs. 

The  nominal  amount  of  all  the  stocks  pur- 
chased was  ^1,994,801.43,  for  which  ^1,392,- 
672.54  in  specie  were  paid.  Of  this  sum, 
1^957,770.65  were  credited  to  the  surplus 
revenue,  and  the  balance  to  the  loan. 

The  first  permanent  fund  for  the  extinction 
of  the  public  debt  was  established  by  the  Act 
of  the  8th  of  May,  1792.  This  fund  had  a 
twofold  endowment  :  first,  it  was  endowed 
with  the  annual  interest  on  the  public  debt,  — 
that  is,  on  the  portion  previously  purchased, 


36  AMERICAN  FINANCES, 

redeemed,  or  paid  into  the  Treasury  for  any 
debt  or  demand  of  the  United  States,  and 
also  on  any  portion  that  might  thereafter  be 
purchased,  redeemed,  or  so  paid ;  and  sec- 
ondly, it  was  endowed  with  the  surplus  remain- 
ing of  the  sums  appropriated  to  pay  the 
interest  on  the  public  debt.  The  annual  pro- 
ceeds of  this  fund,  which  increased  as  the 
outstanding  stock  decreased,  were  appropri- 
ated and  inviolably  pledged  to  the  purchase, 
in  as  equal  proportion  as  possible,  of  the  sev- 
eral species  of  stocks  constituting  the  public 
debt,  at  their  market  price  respectively,  if  it 
did  not  exceed  the  par  or  true  value  ;  and 
this  purchasing  was  to  continue  until  the 
annual  income  of  the  fund  should  be  equal  to 
two  per  cent  of  the  whole  amount  of  the  out- 
standing funded  stock  bearing  a  present  inter- 
est of  six  per  cent.  The  fund  was  thence- 
forth to  be  applied  to  the  redemption  of  that 
portion  of  the  debt  (according  to  the  reserved 
right  of  the  Government),  until  the  whole  of 
it  was  redeemed.  This  redemption  being  ac- 
complished, purchases  were  to  be  resumed  out 
of  the  fund  of  the  remaining  unredeemed 
debt. 


1789-1835-  37 

The  fund  was,  however,  inadequate  to  any 
very  serious  or  immediate  reduction  of  the 
debt.  The  annual  interest  account,  its  only 
certain  resource,  was  of  slow  growth,  and 
amounted  at  that  time  to  less  than  forty 
thousand  dollars  ;  whereas  a  sum  equal  to  two 
per  cent  on  the  whole  amount  of  the  six-per- 
cent stock  was  upwards  of  six  hundred  thou- 
sand dollars. 

The  plan  of  redemption  devised  by  the  Act 
of  the  8th  of  May,  1792,  was  now  enlarged 
and  perfected  by  the  Act  of  the  3d  of  March, 
1795,  in  which  the  name  of  sinking-fund  was 
first  adopted.  The  resources  of  the  sinking- 
fund  were  now  enlarged  to  such  an  extent 
out  of  the  permanent  revenues,  out  of  the 
proceeds  of  former  provisions,  and  from  the 
bank  dividends  in  excess  of  the  annual  inter- 
est on  the  unpaid  instalments  of  the  subscrip- 
tion loan,  as  to  enable  the  Government,  on 
the  strength  of  this  increase,  to  commence, 
on  the  1st  of  January,  1796,  the  annual  reim- 
bursement of  the  six -per -cent  stock;  to  pay 
as  they  became  due  the  annual  instalments 
themselves  of  the  subscription  loan  of  the 
National    Bank ;    and    upon    the    final    scttle- 

Q  0  1  n  Ci 


38  AMERICAN  FINANCES, 

ment  of  this  last-mentioned  debt,  to  begin  on 
the  1st  of  January,  1802,  the  regular  reim- 
bursement of  the  deferred  stock. 

The  absolute  appropriation  of  more  liberal 
funds  was  deemed  imprudent  and  unsafe  in 
the  existing  state  of  the  revenue,  but  some 
auxiliary  resources  of  a  contingent  character 
were  made  available  to  the  sinking  -  fund. 
These  consisted  of  the  net  proceeds  of  the 
sales  of  the  public  lands,  of  all  moneys  re- 
ceived into  the  Treasury  on  account  of  debts 
which  originated  under  the  old  Government, 
and  of  all  surpluses  arising  from  excess  of 
revenue  or  from  unexpended  appropriations. 
These  accessions,  it  was  hoped,  would  amply 
secure  a  more  speedy  redemption  of  the  debt 
than  had  been  expressly  stipulated  for.  No 
further  provision  in  the  sinking  -  fund  was 
made  applicable  to  the  purchase  or  redemp- 
tion of  any  other  component  part  of  the  pub- 
lic debt  until  the  six-per-cent  and  the  deferred 
stock  had  been  discharged.  Upon  such  dis- 
charge, all  the  moneys  of  the  fund  were  to  be 
used  in  the  purchase  or  redemption  of  the 
remaining  unpaid  debt,  whether  funded  or 
unfunded,    foreign   or   domestic.     If,    however, 


i78g  - 1835.  39 

prior  to  the  discharge  of  the  six-per-cent  and 
the  deferred  stocks,  the  resources  of  the 
sinking-fund  were  found  adequate  to  paying 
the  sums  annually  applicable  to  the  reim- 
bursement of  these  two  stocks,  and  yielding 
a  surplus  besides,  then  this  surplus  might 
meanwhile  be  employed  in  reducing  the  other 
parts  of  the  debt.  Nor  could  the  moneys  of 
the  sinking-fund  be  diverted  to  any  other  pur- 
pose than  the  paying  of  the  public  debt  until 
the  whole  of  it  was  paid,  except  when  its  only 
remaining  outstanding  portion  was  the  three- 
per  -  cent  stock ;  in  which  event  Congress 
reserved  the  right  of  using  the  moneys  of  the 
fund  thereto  pledged  for  any  purpose  it  might 
see  fit. 

The  President  of  the  Senate,  the  Chief  Jus- 
tice, the  Secretary  of  the  Treasury,  the  Secre- 
tary of  State,  and  the  Attorney-General,  for  the 
time  being,  were  appointed  the  commissioners 
of  the  sinking-fund.  All  reimbursements  of 
the  capital  of  the  debt  were  placed  under 
their  superintendence  ;  and  all  moneys  accru- 
ing to  the  fund  were  so  vested  in  them  as 
to  acquire  the  nature  and  quality  of  a  pro- 
prietary  trust,    incapable    of    being    diverted, 


40  AMERICAN  FINANCES, 

except  by  a  violation  of  the  principles  and 
sanctions  of  private  property,  to  any  other 
object  than  the  reduction  of  the  public  debt. 
In  order  that  this  system  of  redemption 
might  not  be  dependent  on  extraneous  pro- 
visions, but  have  within  itself  full  means  of 
complete  execution,  the  commissioners  were 
empowered  and  required  to  anticipate  the 
revenue  already  appropriated,  and  make  loans 
whenever  the  prompt  payment  of  the  annual 
interest  rendered  such  a  course  necessary. 
These  loans  were  not  to  exceed  in  any  one 
year  one  million  of  dollars,  and  were  to  be 
payable  within  a  year  from  the  date  of  each 
loan.  F'urthermore,  if,  in  their  judgment,  there 
was  reason  to  apprehend  that  all  the  prob- 
able receipts  into  the  Treasury  for  any  year 
vv^ould  fall  short  of  the  amount  needed  for  the 
annual  current  expenditures  of  the  Govern- 
ment, as  well  as  for  the  payments  they  had 
in  charge,  they  were  in  such  contingencies 
also  authorized,  and  even  enjoined,  to  borrow, 
either  by  direct  loan  or  by  the  sale  of  certifi- 
cates of  stock,  any  sums  requisite  for  paying 
instalments  falling  due  of  the  debt  existing 
on  the  3d  of  March,   1795.     For  the  payment 


J78g-i835-  4 1 

of  the  interest  on  these  projected  loans,  there 
were  pledged  and  appropriated,  first,  the  in- 
terest on  the  sums  reimbursed  from  their 
proceeds  ;  and  secondly,  such  amount  of  the 
permanent  revenue  as  might  be  necessary  to 
make  up  any  deficiency.  The  interest  on  the 
six -per -cent  and  the  deferred  stocks  was 
already  set  apart  to  form  accumulations  for 
paying  the  successive  instalments  of  the 
principal  of  these  stocks,  for  these  instal- 
ments increased  each  year  in  the  ratio  of  the 
interest  liberated  by  each  payment. 

The  great  object  of  the  law  of  the  3d  of 
March,  1795,  seems  to  have  been  to  make 
efficient  provision  for  the  gradual  reimburse- 
ment of  the  six-per-cent  and  deferred  stocks, 
and  so  pave  the  way  for  a  future  though  dis- 
tant payment  of  the  remainder  of  the  debt. 
As  the  successive  reimbursement  of  these  two 
stocks  became  thenceforth  an  irrevocable  stipu- 
lation with  the  creditors,  they  were  virtually 
converted  from  an  annuity  of  six  per  cent  per 
annum  for  an  indefinite  period,  into  an  annuity 
of  eight  per  cent  for  a  period  of  somewhat 
less  than  twenty-four  years  from  the  first 
payment    under   the    new   system.      The    first 


42  AMERICAN  FINANCES, 

payment  made  on  account  of  the  principal  of 
this  stock  was  in  one  undivided  sum,  but 
after  that  no  distinction  was  observed  in  the 
payments  between  the  interest  account  and 
that  of  the  principal.  Dividends  at  the  rate 
of  one  and  one-half  per  cent  on  the  original 
amount  of  stock  were  paid  on  the  last  day  of 
March,  June,  and  September,  and  of  three 
and  one-half  per  cent  on  the  last  day  of 
December,  of  every  year.  This  arrangement 
was  adopted  because  of  its  easy  execution, 
and  was  most  favorable  to  the  equal  and 
regular  circulation  of  the  revenue. 

The  foreign  debt  already  rested  in  contracts 
which  provided  for  its  gradual  reimbursement 
at  stipulated  periods.  The  Dutch  debt  made 
up  the  largest  part  of  it.  This  debt  amounted 
to  $12,200,000,  and  for  its  extinguishment 
during  the  next  fifteen  years  required  annual 
payments  ranging  from  $80,000  to  $2,220,000, 
and  averaging  for  each  of  these  years  $813,- 
333.33,  not  including  i)remiums,  gratifications, 
commissions,  and  expenses  of  remittance  ;  for 
all  of  these  debts  no  provision  was  practically 
made,  except  by  borrowing  money.  However, 
as   an    expedient    for   postponing    these    pay- 


lySg  - 1835.  43 

ments  as  long  as  the  state  of  the  finances 
required  it,  a  proposal  was  submitted  to  the 
foreign  creditors  to  conv^ert  their  debts  into  a 
domestic  stock,  reimbursable  at  the  pleasure 
of  the  Government.  An  increase  of  interest 
of  one-half  per  cent  per  annum,  in  addition  to 
the  rate  already  secured  by  the  original  con- 
tracts, was  offered  them  in  indemnification 
for  incidental  charges,  —  such  as  the  expense 
and  hazard  of  employing  agents  in  the  United 
States,  the  chances  of  exchange,  payments  of 
insurance  and  commissions,  and  in  general  for 
equalizing  the  facilities  attending  the  payment 
of  interest  at  home.  The  French  Government 
only,  we  have  seen,  subscribed  the  remaining 
portion  of  its  debt  to  this  domestic  loan. 

The  Act  of  the  3d  of  March,  179S,  is  an 
event  of  importance  in  the  financial  history 
of  the  country.  It  was  the  consummation  of 
what  remained  unfinished  in  our  system  of 
public  credit,  in  that  it  publicly  recognized, 
and  ingrafted  on  that  system,  three  essential 
principles,  the  regular  operation  of  which  can 
alone  prevent  a  progressive  accumulation  of 
debt :  first  of  all  it  established  distinctive  rev- 
enues for  the  payment  of  the  interest  of   the 


44  AMERICAN  FINANCES, 

public  debt  as  well  as  for  the  reimbursement 
of  the  principal  within  a  determinate  period ; 
secondly,  it  directed  imperatively  their  applica- 
tion to  the  debt  alone ;  and  thirdly,  it  pledged 
the  faith  of  the  Government  that  the  appointed 
revenues  should  continue  to  be  levied  and 
collected  and  appropriated  to  these  objects 
until  the  whole  debt  should  be  redeemed. 

Under  the  operation  of  this  sinking-fund, 
the  payment  of  the  public  debt  was  designed 
and  anticipated  to  take  place  by  the  year  1826, 
or  within  a  period  of  about  thirty  years.  It 
did  not  respond  to  this  aim  and  anticipation. 
Indeed,  the  practical  working  of  a  scheme  so 
complex  and  intricate  would  have  been  in  the 
long-run  problematical,  even  had  events  suf- 
fered it  to  take  its  regular  and  intended 
course.  Be  that  as  it  may,  the  failure  of 
some  of  its  provisions,  in  concurrence  with 
fresh  troubles  both  at  home  and  abroad,  be- 
sides aggravating  some  latent  defects,  over- 
strained the  weak  points  of  a  system  which, 
under  more  favorable  circumstances,  might 
have  been  atoned  for,  if  not  wholly  overcome, 
by  the  elastic  resources  of  the  country. 


CHAPTER   11. 

REVENUE,  EXPENDITURE,  AND  THE  SINKING-FUND. 

The  Sinking-fund  Act  of  1795,  while  it  made 
assured  and  ample  provision  for  reimbursing 
the  six-per-cent  stock,  failed  to  extend  a  simi- 
lar provision  to  the  other  part  and  descrip- 
tion of  the  public  debt.  This  omission  proved 
a  defect  in  that  important  measure ;  and  it 
was  so  speedily  brought  to  light,  that  its  dis- 
turbing influence  was  at  once  felt  in  all  the 
estimates  of  the  year  following  the  one  which 
saw  the  passing  of  the  Act. 

Early  in  the  year  1796,  intelligence  reached 
this  country  that  the  creditors  in  Amsterdam 
and  Antwerp  had  rejected  the  proposal  to  con- 
vert the  foreign  debt  into  a  funded  domestic 
stock ;  and  it  was  also  known  that  the  unsettled 
position  of  affairs  in  Europe,  caused  by  the 
war  then  waging,  would  in  the  interim  pre- 
clude any  further  loans   being  obtained  there. 

45 


46  AMERICAN  /-YAA.VCES, 

Funds  would  therefore  have  to  be  transmitted 
abroad,  to  meet  reimbursements  on  the  for- 
eign debt,  as  stipulated  for  in  the  contracts. 
This  unforeseen  necessity  was  of  itself  suffi- 
ciently embarrassing ;  but  it  chanced  to  be 
further  aggravated  by  a  request  made  about 
the  same  time  by  the  directors  of  the  United- 
States  Bank,  to  the  effect  that  the  Govern- 
ment would  take  measures  for  paying  the 
loans  already  due  the  bank,  and  would  also 
provide  for  the  loans  falling  due  in  the  course 
of  the  current  year. 

Here  were  sudden  and  unlooked-for  demands 
upon  the  Treasury,  which  raised  the  expendi- 
ture for  the  year  1 796  to  the  extent  of  several 
millions  of  dollars.  Yet  no  provision  what- 
ever had  been  made  for  discharging  these 
obligations. 

The  loans  made  to  the  Government  by  the 
Bank  of  the  United  States  amounted,  on  Jan. 
I,  1796,  to  $6,000,000.  Each  of  these  several 
loans  had  been  obtained  on  a  pledge  of  the 
revenues,  with  the  sole  exception  of  a  balance 
of  $1,400,000  yet  due  on  the  stock  loan  of 
;^2,ooo,ooo.  During  the  recent  troubles,  when 
expenses    were    mounting    up    rapidly,    every 


lySg  - 1833.  47 

appropriation  that  called  for  immediate  pay- 
ment was  compelled  to  be  made  against  newly- 
levied  revenues,  which  themselves  were  already- 
subject,  on  their  collection,  to  credits  running 
from  six  to  twenty-four  months.  In  order, 
therefore,  to  procure  the  money  at  once,  loans 
designed  to  be  no  more  than  temporary  were 
obtained  of  the  bank,  in  anticipation  of  the 
actual  receipt  of  taxes.  As,  however,  the 
revenue  properly  belonging  to  each  year  was 
being  kept  tied  up  by  reason  of  the  long 
credits  given  on  the  outstanding  bonds,  the 
pledged  taxes,  when  they  reached  the  Treasury, 
were  all  absorbed  in  defraying  the  current  ex- 
penditures. Under  these  circumstances,  the 
Government  found  itself  compelled,  in  order 
to  keep  on  hand  sufficient  cash  funds,  to  re- 
new the  temporary  loans,  when  once  they  were 
made  ;  and  so  it  went  on,  until  the  debt  owing 
to  the  bank  grew  at  length  to  be  so  enormous 
as  even  to  paralyze  its  operations,  depriving 
it,  as  the  fact  proved,  of  nearly  two-thirds  of 
its  capital. 

When,  therefore,  the  payment  of  this  debt 
came  eventually  to  be  insisted  on,  some  method 
of   raising  the  money  had    to  be  devised  dif- 


48  AMERICAN  FINANCES, 

ferent  from  that  of  taking  it  from  the  receipts 
for  the  coming  year,  1796;  for  these  receipts, 
although  already  appropriated  to  pay  the  bank, 
were  clearly  not  available. 

In  this  conjuncture,  a  proposal  was  submitted 
to  the  bank,  to  commute  the  entire  debt  into 
a  funded  domestic  stock,  to  bear  interest  at 
six  per  cent.  This  plan  met  with  failure, 
inasmuch  as  the  bank  declined  to  receive  the 
stock  at  its  par  value.  The  next  move  was 
an  attempt  to  negotiate  a  public  sale  of  the 
stock ;  but  the  terms  offered  were  so  dis- 
advantageous to  the  Government,  that  the  loan 
was  withdrawn.  Out  of  this  new  stock,  not 
redeemable  until  after  the  year  18 19,  only 
eighty  thousand  dollars'  worth  were  sold,  for 
seventy  thousand  dollars  in  cash. 

As  a  fresh  resort  toward  responding  to  the 
more  urgent  demands  of  the  bank,  2,780  shares 
of  the  bank-stock,  at  $400  a  share,  were  sold 
at  a  premium,  realizing  thereby  ^1,384,260. 
The  proceeds  of  this  sale  had  the  effect  of 
satisfying  the  bank,  and  indeed  the  relief  it 
produced  was  such  as  to  allow  a  postponement 
in  discharging  the  balance  of  the  loans.  These 
were  by  degrees  subsequently  paid  out  of  the 


lySg  - 1835.  49 

current  revenues.  As  to  the  Dutch  debt, 
the  instalment  of  $400,000  due  upon  it  the 
Government  found  itself  enabled  to  pay  by 
an  unexpected  increase  in  the  revenue  from 
imports  and  internal  duties. 

The  annual  addition  to  the  revenue  which 
would  be  required,  in  order  to  ward  off  the 
necessity  of  having  recourse  to  new  loans, 
was  found  on  computation  to  be  $1,229,000. 
For  the  purpose  of  commanding  this  amount, 
duties  were  laid,  under  the  Act  of  March  3, 
1797,  on  certain  imported  articles.  These 
duties  consisted,  in  the  main,  of  an  increased 
specific  duty  on  sugar,  tea,  and  molasses,  and 
of  an  extra  ad  valorem  duty  of  two  and  a 
half  per  cent  on  cotton  goods.  This  increase, 
combined  with  an  addition  of  fifty  per  cent 
to  the  tax  on  carriages,  brought  the  annual 
revenue  up  to  nearly  $7,500,000.  Out  of  this 
sum,  not  only  the  current  service  was  provided 
for,  but  also  the  interest  on  the  entire  debt ; 
and  it  was  found  adequate,  besides,  for  paying 
any  instalments  of  the  principal  that  might  fall 
due  from  the  year  1797  to  the  year  1801.  By 
special  appropriation,  all  proceeds  arising  from 
the  new  tariff  duties  were   set  apart   for  the 


50  AMERICAN  FINANCES, 

payment,  first,  of  the  principal  of  the  foreign 
debt,  and  then  of  the  principal  of  the  debt  due 
to  the  Bank  of  the  United  States. 

Scarcely  had  these  arrangements  been  en- 
tered upon  when  the  Government  found  itself 
on  the  point  of  a  serious  difficulty  with  France. 
The  spoliations  of  this  power  upon  our  com- 
merce had  aroused  a  determination  to  protect 
it.  Discretionary  powers  were  conferred  on 
the  President  in  an  extra  session  of  Congress, 
which,  in  the  event  of  an  actual  outbreak, 
were  to  be  employed  in  such  preparations  for 
the  conflict  as  his  judgment  might  deem  neces- 
sary. In  anticipation  of  this  possible  expendi- 
ture, additional  duties  were  imposed ;  but  as 
the  contingent  expenditure  was  not  created, 
the  receipts  of  the  year  1797  produced  a 
surplus  of  upwards  of  ^1,900,000,  which,  in 
accordance  with  the  law,  was  applied  to  the 
reduction  of  the  public  debt. 

In  the  year  following,  the  need  of  giving 
greater  security  to  American  commerce  com- 
pelled the  Government  to  submit  to  heavy  cost, 
both  for  military  and  maritime  armaments. 
Stamp-duties  were  now  laid  upon  printed  and 
written   documents   of   various    kinds ;   and  at 


iy8g-i835-  5 1 

the  same  time,  there  was  also  placed  upon 
dwelling-houses,  lands,  and  slaves  a  direct  tax 
of  two  millions  of  dollars,  which  latter  tax  was 
apportioned  among  the  States,  according  to  the 
Constitutional  rule.  A  loan  of  five  millions  of 
dollars  was  likewise  authorized  ;  and  this  loan 
went  to  supply  the  deficit  in  the  current  ex- 
penses for  the  years  1798  and  1799,  which  was 
caused  by  the  outlay  for  defensive  operations 
by  land  and  sea. 

This  loan  of  five  millions  of  dollars  is  note- 
worthy as  being  the  first  in  the  United  States 
that  was  negotiated  of  its  individual  citizens. 
The  times  looked  unpropitious  for  its  success  : 
there  was  a  near  prospect  of  war,  and  no  rea- 
son to  look  for  any  but  the  most  limited  assist- 
ance from  the  banks.  In  spite,  however,  of 
this  untoward  outlook,  stock,  redeemable  after 
fifteen  years,  was  issued,  bearing  eight-per- 
cent interest,  which  was  the  market- rate  at  the 
time.  It  was  all  readily  disposed  of  at  par. 
Additional  stock  on  the  same  terms  was  issued 
to  the  amount  of  $1,481,700.  This  latter  was 
for  the  current  service  of  the  year  1800,  and 
its  sale  realized  an  average  premium  of  5.6  per 
cent.     Besides  these  two  loans,  certificates  of 


52  AMERICAN  FINANCES, 

indebtedness  (known  in  the  Treasury  records 
as  "navy  six-per-cent  stock")  were  issued  for 
1^711,700,  in  payment  of  a  number  of  war-ves- 
sels furnished  to  the  Government  in  the  year 
1798.  To  secure  the  interest  upon  these  new 
debts,  a  furtlier  increase  of  the  tariff  duties 
was  resorted  to. 

The  restoration  of  peace  to  Europe,  coupled 
with  the  settlement  of  our  own  difficulties  with 
France,  relieved  the  Government  of  further 
financial  embarrassment.  A  speedy  reduction 
was  made  in  public  expenditures,  especially  in 
those  connected  with  the  military  and  naval 
establishments.  The  expenditure  for  the  cur- 
rent service,  including  in  the  term  all  payments 
excepting  those  for  the  public  debt,  was  re- 
duced from  ^9,972,248  in  the  year  1800,  to 
^4,958,228  in  the  year  1802;  while,  owing  to 
the  same  causes,  the  receipts  from  customs 
rose  from  $9,080,932  in  1800,  to  $12,438,235 
in  1802.  This  last-named  sum  exceeded  by 
$1,200,000  the  aggregate  up  to  that  time  that 
had  been  collected  in  any  one  year  from  the 
customs  and  internal  revenue  both  together. 

Congress  profited  by  this  prosperous  condi- 
tion of  the  finances  of  the  country,  to  redeem 


178Q-1835.  53 

the  pledge  given  at  the  different  times  of  con- 
tracting the  public  debt.  By  the  terms  of  this 
pledge,  every  deficiency  which  might  occur  as 
to  the  provisions  for  paying  the  interest  and 
principal,  Congress  had  bound  itself  to  supply. 
How  very  inadequate  the  Sinking-fund  Act  of 
1795  had  proved,  needed  no  further  demonstra- 
tion than  recent  events.  Its  operation  had 
been  from  the  first  limited  to  the  debts  exist- 
ing on  the  3d  of  March,  1795  ;  and  this  re- 
strictive feature  in  its  scheme  necessarily 
excluded  from  its  provisions  all  subsequent 
debts.  The  Dutch  debt  also  was  placed  in  an 
equally  improvident  condition  ;  for  by  their  re- 
fusal to  modify  their  contracts,  or  to  make  new 
loans,  the  foreign  creditors  had  thereby  de- 
feated the  sole  provision  made  in  behalf  of 
their  debts  by  the  Sinking-fund  Act.  As  a 
consequence,  a  permanent  and  effectual  enact- 
ment covering  the  whole  of  the  public  debt  did 
not  at  this  time  exist.  Nevertheless,  the 
annual  interest  had  been  promptly  met,  as  also 
such  portions  of  the  principal  as  were  abso- 
lutely demandable.  And  yet  the  mode  under 
which  these  payments  were  made,  was  irregular 
and  unauthorized. 


54  AMERICAN  FINANCES, 

These  irregularities,  and  others  of  greater 
moment,  were  the  direct  result  of  not  ingraft- 
ing upon  the  original  plan  of  the  sinking-fund 
such  supplementary  legislation  as  the  public 
exigencies  demanded.  The  auxiliary  revenues, 
for  instance,  which  had  been  recently  and  espe- 
cially created  for  the  interest  and  principal  of 
the  new  public  debt,  had  never  been  pledged 
on  the  faith  of  the  United  States,  as  was  the 
case  with  the  other  revenues  ;  nor  were  they 
vested  in  the  commissioners  of  the  sinking- 
fund,  under  whose  direction  the  law  required 
that  all  payments  on  account  of  the  principal 
should  be  made.  Even  this  positive  injunction 
came  to  be  continually  disregarded,  by  reason 
of  large  payments  having  at  times  to  be  made 
out  of  moneys  independent  of  the  sinking- 
fund,  and  charged  to  the  year  in  which  they 
occurred.  Furthermore,  no  imperative  clause 
directing  their  payment  accompanied  the  re- 
cent appropriations  for  the  debt ;  and  since 
these  appropriations  were  not  bottomed  on  any 
specified  source  of  revenue  applicable  solely  to 
the  debt,  they  could  claim  no  priority  over 
appropriations  for  the  civil,  military,  and  naval 
expenses  of  the  Government.     In  common  with 


I78g-i835-  55 

these  latter,  they,  too,  simply  rested  upon  any 
moneys  in  the  Treasury.  It  is  clear,  then,  that 
these  recent  provisions  were  not  in  the  nature 
of  a  contract  with  the  creditors ;  and  besides, 
like  other  ordinary  enactments,  they  were  liable 
to  repeal  at  the  pleasure  of  Congress,  without 
involving  any  breach  of  faith.  Nor  was  any 
security  afforded  by  the  appropriation  of  the  sur- 
pluses of  the  revenue,  even  though  vested  in  the 
commissioners,  since  nothing  else  v/as  needed 
to  defeat  this  provision  than  to  make  appropri- 
ations for  other  objects  than  the  public  debt. 

The  Dutch  debt  fared  like  the  others,  not- 
withstanding the  duties  of  the  year  1797  were 
expressly  appropriated  in  payment  of  it. 
What  these  duties  amounted  to,  was  not  easily 
ascertainable ;  for,  under  the  existing  mode  of 
ascertaining  them,  it  was  not  practicable  to 
separate,  in  the  annual  total,  these  particular 
ad  valorem  duties  from  the  other  proceeds  of 
similar  duties.  Taking,  however,  a  liberal 
estimate,  the  former  were  set  down  at  1^500,- 
000.  This  sum  when  added  to  the  revenue 
from  the  sale  of  the  public  lands,  which  was 
to  be  applied  to  the  same  object,  produced  no 
more  than  ^900,000.     But  it  was  now  that  the 


56  AMERICAN  FINANCES, 

heaviest  instalments  of  the  Dutch  debt  were 
beginning  to  fall  due :  they  varied  for  the  year 
1802,  and  for  the  five  years  thence  ensuing, 
from  $920,000  to  $2,220,000,  averaging  for 
each  of  these  six  years  nearly  $1,600,000. 
The  actual  provision  for  these  instalments  was 
therefore  not  only  uncertain,  but  inadequate. 
As  for  the  duties  of  the  year  1800,  any  appro- 
priation of  them  to  the  newly  made  debts  was 
rendered  nugatory  by  the  fact  of  those  duties 
having  been  made  applicable  to  the  payment 
of  the  interest  on  the  public  debt.  The  duties 
of  1797  were  limited  in  their  appropriation  to 
the  Dutch  debt  and  to  the  debts  of  the  Bank 
of  the  United  States,  the  appropriation  to  cease 
on  their  extinction. 

To  remove  this  conflict  and  confusion  in  the 
provisions  relating  to  the  public  debt,  Congress 
enacted  a  new  law  on  the  29th  of  April,  1802, 
which  was  designed  to  remedy  the  defects,  and 
supply  the  omissions,  of  the  Sinking-fund  Act 
of  1795.  The  fiscal  resources  of  the  country 
were  now  subjected  to  a  clear  and  definite  sur- 
vey, and  a  like  scrutiny  was  applied  in  ascer- 
taining the  actual  nature  and  extent  of  the 
national  obligations. 


1789-1835.  57 

Just  previous  to  this  re-organization  of  tlie 
sinking-fund,  the  prosperous  condition  of  the 
revenue  had  justified  a  repeal  of  all  internal 
duties.  These  duties  were  peculiarly  obnox- 
ious, and  had  all  along  been  regarded  as  hostile 
to  the  genius  of  a  free  people.  Their  ten- 
dency to  multiply  offices,  and  to  increase  the 
patronage  of  the  executive,  was  another  cause 
of  objection  to  them.  Besides,  the  established 
policy  of  the  Government  was  to  abstain, 
whenever  practicable,  from  exercising  the  right 
of  taxation  on  subjects  over  which  the  indi- 
vidual States  possessed  a  concurrent  right. 

The  revenues  which  continued  in  force  were 
the  duties  on  tonnage  and  imported  merchan- 
dise ;  the  proceeds  of  the  sale  of  public  lands  ; 
the  duties  on  postage ;  and  the  incidentals  aris- 
ing from  fines,  fees,  and  penalties,  from  repay- 
ments into  the  Treasury,  and  from  sales  of  pub- 
lic property  other  than  lands.  These  several 
sources  were  estimated  to  yield  yearly  ^9,950,- 
000.  There  were,  besides,  resources  of  a  tem- 
porary character  of  over  ^4,000,000 ;  these  con- 
sisting of  the  balance  due  on  the  direct  tax,  of 
outstanding  internal  duties,  of  the  sums  derived 
from  the  sale  of  public  vessels,  of  the  shares 


SS  AMERICAN  FINANCES, 

of  the  Bank  of  the  United  States,  and  of  the 
disposable  balance  of  specie  in  the  Treasury. 

Taking  the  estimate  of  appropriations  as 
a  basis,  the  annual  permanent  expenditures, 
leaving  out  those  relating  to  the  public  debt, 
were  found  to  require  the  sum  of  1^2,650,000. 
Deducting  these  expenditures  from  the  annual 
revenue  left  a  remainder  of  $7,300,000.  Now, 
to  make  all  the  payments  actually  due,  during 
the  years  1802,  1803,  and  1804,  on  the 
interest  and  principal  of  the  foreign  and 
domestic  debt,  would  demand  a  sum  equal 
to  the  above  surplus.  And  as  large  a  sum 
could  be  furthermore  absorbed  were  the  Gov- 
ernment to  provide  for  all  the  payments  for 
the  eight  years  ending  in  April,  18 10,  which, 
according  to  its  reserved  right,  it  was  at  lib- 
erty to  make.  But  after  that  date  the  pro- 
spective employment  of  so  great  a  fund  as 
^7,300,000  was  in  some  measure  dependent 
upon  the  price  at  which  purchases  of  the  out- 
standing stocks  could  be  effected.  Consider- 
ing, however,  that  the  ability  of  the  country 
to  bear  taxation  was  now  increasing  with  its 
rapid  growth  in  wealth  and  population,  thus 
making  the  burden   lighter  year  by  year,  the 


lySg-iSjj.  59 

provision  deemed  necessary  for  the  first  three 
arduous  years  was  accordingly  extended  to 
the  term  of  the  full  redemption  of  the  public 
debt. 

The  sum  of  $7,300,000  was  thus  annually 
and  permanently  appropriated  to  the  sink- 
ing-fund, and  vested  in  its  commissioners,  who 
were  directed  to  apply  it,  whether  by  payment 
or  purchase,  to  the  further  and  final  redemp- 
tion of  the  public  debt.  Not  only  the  re-im- 
bursement  of  the  principal  was  placed  under 
their  superintendence,  but  also  the  payment 
on  account  of  the  interest  and  contingent 
charges.  And  it  was  made  the  duty  of  the 
secretary  of  the  Treasury  to  pay  over  this 
sum  to  the  commissioners,  in  such  amounts 
and  at  such  times  as  a  faithful  and  punctual 
compliance  with  the  engagements  of  the 
United  States  might  demand. 

Against  every  ordinary  contingency  to  arise 
out  of  a  possible  fall  in  the  current  revenues 
below  the  estimates  on  which  the  appropriation 
for  the  public  debt  was  based,  the  Treasury  was 
effectually  provided.  Certain  eventual  demands 
against  the  United  States,  arising  under  treaties 
with  foreign  powers,  and  amounting  to  several 


6o  AMERICAN  FINANCES, 

millions  of  dollars,  were  made  a  contingent 
charge  upon  the  sinking-fund.  But,  circum- 
stances permitting  it,  these  demands,  together 
with  the  temporary  bank  loans,  were  payable 
out  of  any  other  moneys  at  the  command  of 
the  Treasury.  The  four  million  dollars  of  tem- 
porary resources  previously  mentioned,  were  by 
this  arrangement  set  free,  to  be  drawn  upon,  if 
necessary,  in  aid  of  the  current  revenues.  As 
an  additional  precaution,  authority  was  con- 
ferred on  the  commissioners  of  the  sinking- 
fund  to  extend,  by  means  of  re-loans,  the  terms 
of  payment  of  the  Dutch  debt,  so  as  to  equalize 
over  the  eight  ensuing  years  the  payments 
which  fell  principally  on  the  first  five  years. 
This  expedient,  if  made  effectual,  would  go  to 
reduce  the  payment  in  Holland  from  about  two 
millions  a  year  to  one  million.  A  million  of 
dollars  would  in  this  way  become  disengaged, 
and  might  be  employed  in  payment  of  the  bank 
loans,  or  of  any  other  part  of  the  debt  held 
and  payable  here  in  America. 

The  Sinking-fund  Act  of  1802  was  a  marked 
improvement  upon  that  of  179S,  in  that  it  sim- 
plified a  hitherto  very  complicated  system  of 
finance,   thus   making  it  fully  adequate  to  its 


1789-1833-  6 1 

specific  object.  Not  a  single  appropriation, 
not  an  asset  belonging  to  the  old  fund,  was 
either  deranged  or  altered  by  its  action.  The 
reform  was  accomplished  by  kneading  together 
into  one  consolidated  mass  the  scattered  and 
special  funds  already  established,  and  then  by 
adding  to  this  total  sum,  out  of  the  duties  on 
tonnage  and  imported  merchandise,  sufficient 
to  make  up  the  designated  amount  of  ^7,300,000. 
The  actual  addition  to  the  permanent  and  vested 
revenues  of  the  old  fund  was  about  ^1,800,000. 

By  the  Act  of  Nov.  10,  1803,  six-per-cent 
stock  to  the  amount  of  ^11,250,000  was  cre- 
ated, and  made  redeemable  after  the  year 
18 17.  This  was  in  pursuance  of  a  convention 
with  France  for  payment  in  part  of  the  pur- 
chase of  Louisiana.  Upon  this  new  burden 
being  thrown  upon  the  sinking-fund,  its 
resources  became  augmented  to  the  extent 
of   ;^70o,ooo  annually. 

At  first  there  was  no  little  misgiving  as  to 
the  prudence  of  devoting  so  large  a  sum  as 
1^7,300,000  to  the  use  of  the  public  debt.  But 
this  misgiving  was  speedily  dissipated  when  it 
was  found  that,  for  several  years,  the  revenues 
were    in    excess    of    the    estimates,    and    the 


62  AMERICAN  FINANCES, 

payments  made  upon  the  public  debt  were 
accordingly  far  beyond  the  amount  of  the 
appropriation.  The  rapid  extinction  of  the 
debt  ensuing  thereupon  hastened  the  arrival  of 
the  time  when  the  application  of  the  full 
amount  of  the  sinking-fund  would  have  to 
depend  upon  purchases. 

In  anticipation  of  this  state  of  affairs,  the 
laws  relating  to  the  purchase  of  the  public 
debt  were  revised  in  the  year  1806.  All  the 
previous  Acts  had  authorized  purchases  at  the 
market-price,  if  this  did  not  exceed  the  nominal 
value  of  the  stocks.  This  authority,  however, 
from  the  nature  of  the  debt,  proved  to  be 
nugatory.  The  three  -  per  -  cent  stocks,  for 
example,  were  selling  below  their  nominal 
value,  but  still  at  a  comparatively  higher  and 
less  profitable  rate  than  the  eight-per-cent 
stocks,  which  were  held  above  their  nominal 
value.  Now,  however,  the  maximum  price 
which  the  commissioners  might  in  future  give 
for  the  different  species  of  stocks  was  abso- 
lutely fixed  by  law.  For  six-per-cent  stocks  no 
more  was  to  be  paid  than  the  nominal  value  of 
their  unredeemed  amount.  In  fixing  the  rate 
for   the   eight-per-cent    stocks,    they   were    re- 


1789-1835.  63 

garded  as  consisting  of  an  annuity  of  six  per 
cent  worth  its  par  value,  and  of  an  annuity  of 
two  per  cent  a  year,  to  cease  on  the  stock 
becoming  redeemable.  A  premium  was  ac- 
cordingly offered  for  them,  equal  to  one-half 
of  one  per  cent  for  every  quarter  remaining 
unexpired  from  the  time  of  purchase  to  the 
1st  of  January,  1809;  this  being  the  date  when 
the  eight-per-cent  stocks  were  payable  at  their 
nominal  value,  at  the  pleasure  of  the  Govern- 
ment. The  purchase-price  of  the  three-per- 
cent stocks  was  fixed  at  sixty-five  per  cent  of 
their  nominal  value.  Every  other  limitation 
upon  the  powers  of  the  commissioners,  whether 
as  to  the  time  or  the  manner  of  making  pur- 
chases, was  set  aside,  thus  leaving  them  free  to 
judge  and  act  for  the  best  interests  of  the 
public. 

With  a  view  to  testing  the  efficiency  of  these 
new  provisions,  a  proposal  was  shortly  made 
for  the  purchase  of  the  debt.  The  experiment 
did  not  prove  successful.  Of  the  old  six-per- 
cent and  deferred  stocks,  only  $17,517.61  were 
purchased :  all  other  offers,  amounting  alto- 
gether to  $91,956,  were  made  at  rates  above 
the  market-price  of  the  stocks.     In  the  course 


64  AMERICAN  FINANCES, 

of  the  years  1806  and  1807,  somewhat  over  one 
million  dollars'  worth  of  eight-per-cent  stocks 
was  bought ;  but  the  bulk  of  it  was  held  back, 
notwithstanding  the  premium  offered,  until 
called  in  for  redemption  at  maturity.  The  hope 
of  hastening  the  reduction  of  the  public  debt 
by  purchase  was  therefore  soon  abandoned, 
since  the  direct  tendency  of  this  policy  was  to 
raise  the  price  of  the  stocks.  It  thus  became 
necessary  to  find  employment  for  more  than 
three  millions  of  dollars  of  the  appropriation  to 
the  sinking-fund,  which  in  each  successive 
year  would  otherwise  remain  unexpended. 

The  plan  adopted  was  set  forth  in  the  Act 
of  Feb.  II,  1807,  by  which  it  was  enacted  to 
change  the  terms  of  the  six-per-cent,  of  the 
deferred,  and  of  the  three-per-cent  stocks.  A 
proposition  was  submitted  to  the  holders  of  the 
six-per-cent  and  deferred  stocks  to  exchange 
the  unredeemed  amount  thereof  into  a  common 
six-per-cent  stock,  redeemable  at  the  pleasure 
of  the  Government  upon  public  notice  being 
given  six  months  previous.  It  was  stipulated, 
however,  that  the  total  amount  of  every  new 
certificate  should  be  reimbursed  in  a  single 
payment.     In  thus  having  an   investment   not 


iySg-j835-  65 

subject  to  partial  payments  on  account,  as  was 
the  case  with  the  old  stocks,  there  was  an  ad- 
vantage in  the  opinion  of  the  Government.  A 
more  favorable  offer  was  made  for  the  conver- 
sion of  the  three-per-cent  stock,  as  its  value 
was  regulated  to  some  extent  by  the  obligation 
of  the  Government  ultimately  to  redeem  it  at 
par.  By  this  fact,  there  was  likewise  conferred 
upon  it  somewhat  of  the  character  of  a  per- 
petual annuity,  the  principal  of  which  was 
never  to  be  redeemed.  For  these  reasons,  the 
three-per-cents  had  always  been  worth  more, 
relatively  to  the  interest  received,  than  a  six- 
per-cent  stock  ;  the  former  never  selling  for  less 
than  sixty  per  cent  of  their  nominal  value, 
when  the  latter  was  at  par.  Accordingly,  the 
three-per-cent  stock,  at  the  rate  of  sixty-five 
per  cent  of  its  nominal  value,  was  made  con- 
vertible into  a  six-per-cent  stock,  not  redeem- 
able until  after  the  whole  of  the  eight-per-cent 
and  four-and-a-half-per-cent  stocks,  as  well  as 
all  the  stock  which  might  be  created  in  ex- 
change for  the  old  six-per-cent  and  deferred 
stocks,  should  have  been  reimbursed.  Under 
the  supposition  that  the  plan  of  exchanging 
old  stock  for  new  was  generally  to  be  adopted 


66  AMERICAN  FINANCES, 

by  the  public  creditors,  there  was  thus  offered 
to  the  holders  of  the  three-per-cent  stock  at 
least  eight  years'  immunity  from  redemption. 
The  realizing  during  these  years  of  a  double 
rate  of  interest  was,  in  the  opinion  of  the  Gov- 
ernment, considered  equal  to  a  redemption  of 
more  than  seventy-two  dollars,  a  price  far 
above  the  highest  this  stock  had  ever  reached. 

To  the  foreign  creditors  —  and  these  held 
over  eleven  millions  of  the  three-per-cent 
stock,  and  about  fourteen  millions  of  the  un- 
redeemed amount  of  the  six  -  per  -  cent  and- 
deferred  stocks  —  was  given  the  option  of 
receiving  their  interest,  either  in  London,  at 
the  stipulated  exchange  of  four  shillings  and 
six  pence  sterling  on  the  dollar,  or  at  Amster- 
dam, at  the  rate  of  two  guilders  and  a  half 
current  money  of  Holland  for  every  dollar. 
Interest  was  not  due  abroad,  however,  until 
six  months  after  the  date  it  became  payable 
in  the  United  States ;  and  it  was  also  sub- 
ject to  a  deduction  of  one -half  of  one  per 
cent,  as  commission  to  the  bankers  paying  it. 
The  stocks  bearing  foreign-paid  interest  were 
convertible  at  any  time  into  others,  with  the 
interest  payable  in  the  United  States. 


1789-1S33.  6; 

Subscriptions  were  received,  both  at  home 
and  in  Europe,  from  July  i,  1807,  to  March 
17,  1809.  Within  this  period,  ^9,376,439.62 
(nominal  value)  in  six-per-cent  and  deferred 
stocks  were  surrendered,  for  which  were  given 
1^6,294,051.12  in  new  stock  denominated  "ex- 
changed stock;"  and  ^1,859,850.70  in  new 
stock  known  as  "converted  stock"  were  issued 
in  lieu  of  $2,861,309.15,  subscribed  in  the 
three-per-cent  stock.  Of  the  exchanged  stock, 
$168,464.90  were  taken  in  Europe;  and  of  the 
converted  stock,  $464,494.74. 

Although  the  conversion  of  the  old  debt 
could  show  but  this  limited  success,  it  en- 
abled the  commissioners  of  the  sinking-fund 
to  do  that  which  otherwise  they  could  not 
have  done  ;  namely,  to  apply,  from  the  year 
1807  to  the  year  18 12,  the  entire  appropria- 
tion of  eight  million  dollars  to  the  redemption 
of  the  public  debt.  Before  the  year  181 1  the 
whole  issue  of  the  exchanged  stock  was  reim- 
bursed, and  during  that  year  and  the  early 
part  of  18 1 2  the  converted  stock  was  re- 
deemed. Meanwhile,  all  the  other  parts  of 
the  debt,  both  foreign  and  domestic,  which 
the   Government   was   at   liberty  to   discharge 


68  AMERICAN  FINANCES, 

according    to    the    contracts,    had    been    paid 
off. 

At  the  close  of  the  year  1811,  the  country- 
found  itself  on  the  eve  of  its  second  war  with 
Great  Britain.  This  unfortunate  but  unavoid- 
able event  not  only  put  a  stop  to  the  further 
rapid  extinguishment  of  the  public  debt,  but 
added  to  it  enormously.  The  great  reduction, 
however,  which  had  up  to  this  time  been 
effected,  proved  a  seasonable  and  important 
advantage  to  the  Government  in  the  coming 
struggle.  Excepting  the  annual  reimburse- 
ment of  the  six-per-cent  and  deferred  stocks, 
no  further  payments  were  due  on  the  principal 
of  the  debt  till  the  year  1818.  Every  portion  of 
the  debt  which  was  redeemable  before  that  year 
had  already  been  paid  off.  The  sum  required 
for  paying  the  interest  and  the  reimbursement 
amounted  to  $3,792,382  :  any  surplus  over  this 
amount  was  by  the  Sinking-fund  Act  of  1802 
applicable  to  the  current  expenses  of  the 
Government.  Of  the  eight  million  dollars' 
appropriation,  more  than  $4,200,000  had  been 
liberated  ;  and  this  amount  constituted,  there- 
fore, a  positive  increase  of  revenue  at  the 
disposal  of   the  national  defence.     The  impor- 


ijSg  - 1835.  69 

tance  of  this  fact  can  be  fully  appreciated  only 
in  the  light  of  subsequent  financial  difficulties, 
which  of  themselves  sorely  tested  the  energies, 
and  strained  the  resources,  of  the  country  dur- 
ing the  war  of  1812. 

We  must  here  recur  to  the  old  Revolution- 
ary debt,  which,  liquidated  and  funded  as  it 
was  under  various  Acts  of  Congress,  amounted 
to  ^76,781,953.14.  In  this  total  is  found  in- 
cluded the  funded  interest,  which  had  been 
suffered  to  accumulate  from  the  date  of  the 
organization  of  the  new  Government  to  Janu- 
ary, 1 79 1.  As,  however,  the  Government,  not 
to  speak  of  its  want  of  a  system  of  finance, 
had  to  begin  its  career  without  revenue  or 
funds  of  any  kind  to  meet  the  demands  of 
even  the  ordinary  civil  list,  it  would  seem  im- 
possible for  it  to  have  made  an  earlier  attempt 
to  pay  regularly  the  annual  interest. 

Although  the  natural  result  of  this  delay  in 
commencing  the  payment  of  the  interest  in 
question  was  to  increase  the  public  debt,  still 
there  are  several  considerations  which  sug- 
gest an  offset  to  this  increase.  The  large 
arrears  of  interest,  which  had  accumulated  at 
the  rate  of  six  per  cent  upon  the  old  Rcvolu- 


70  AMERICAN  FIXAXCES, 

tionary  debt,  were  of  right  demandable  by  the 
creditors  in  cash.  By  the  terms,  however,  of 
the  new  contract  with  them,  that  interest  was 
now  converted  into  a  capital  stock,  bearing 
an  interest  of  only  three  per  cent ;  and  there- 
fore the  difference  between  the  market  value 
of  that  stock  and  an  actual  settlement  in 
cash  represented  the  gain  to  the  Government. 
Also,  on  the  principal  of  the  debt,  there  was 
a  reduction  of  interest  from  six  per  cent 
to  a  rate  equivalent  to  four  per  cent,  accord- 
ing to  the  basis  upon  which  the  debt  was  re- 
adjusted. And  again,  owing  to  the  fact  that 
the  interest  on  the  debt  did  not  begin  to 
accrue  until  the  year  1791,  a  large  surplus  of 
revenue  was  enabled  to  be  collected  up  to 
that  date,  which,  under  a  judicious  law  of  Con- 
gress, was  applied  to  the  redemption  of  the 
principal  of  the  debt,  by  means  of  purchases 
on  the  part  of  the  Government.  As  the  pub- 
lic stocks  were  then  selling  below  their  nomi- 
nal value,  a  saving  of  nearly  fifty-four  per  cent 
was  effected  upon  a  capital  of  ^957,770.65 
invested.  Furthermore,  in  so  far  as  the  pur- 
chased stocks  consisted  of  six -per -cents  and 
three  -  per  -  cents,    they   yielded    an    immediate 


J78g-i835-  7 1 

annual  interest  of  $38,000,  and  a  prospective 
interest  upon  the  deferred  stock  of  the  same 
amount  ;  all  of  which  every  year  as  it  ac- 
crued was  used  in  additional  purchases. 

Of  the  original  Revolutionary  debt,  $33,834,- 
188.86  remained  unpaid  on  Jan.  i,  181 2.  The 
whole  of  it  might  readily  have  been  paid  but 
for  the  internal  disorders,  as  well  as  foreign 
entanglements  of  a  warlike  aspect,  ajid  but 
for  the  Government's  consequent  inability  to 
apply  to  its  reimbursement  all  revenues  over 
its  ordinary  expenditures.  From  this  combi- 
nation of  untoward  occurrences,  a  vast  out- 
lay of  money  had  been  required,  which,  if  it 
could  have  been  applied  to  the  extinguish- 
ment of  the  old  debt,  would  have  thereby 
reduced  it  to  quite  small  and  manageable  pro- 
portions. A  large  increase,  also,  of  the  ori 
ginal  debt  had  become  a  necessity.  There 
was,  for  instance,  the  item  of  new  stock  cre- 
ated to  the  extent  of  $18,523,400,  and  none 
of  it  going  to  reimburse  the  old  debt.  Again, 
under  the  provisions  of  a  convention  with 
Great  Britain  of  Jan.  8,  1802,  in  relation  to 
Revolutionary  debts  known  as  "British  debts," 
large   payments,   not    appearing   in    the   state- 


72  AMERICAN  FINANCES, 

ment  of  the  public  debt,  had  been  made  out 
of  the  current  revenues :  these  payments 
amounted  to  $6,356,053.45,  together  with  cer- 
tain claims  of  American  citizens  upon  the 
French  Government,  which,  in  conformity  with 
the  Louisiana  convention  of  1803,  the  United 
States  undertook  to  pay  in  addition  to  the 
direct  payment  to  France  for  the  territory  it- 
self. These  items  were  adequate  to  reducing 
the  old  debt  by  Jan.  i,  18 12,  to  something  less 
than  nine  million  dollars. 

For  the  payment  of  this  balance,  there 
must,  besides,  be  taken  into  account  the 
assets  of  the  Government  on  the  ist  of  Janu- 
ary, 18 1 2,  in  cash  or  its  equivalent,  which 
were  applicable  to  the  face  of  the  debt. 
These  assets  amounted  to  $13,500,000,  and 
consisted  of  the  cash  balance  in  the  Treasury, 
of  outstanding  unpaid  revenue  bonds,  and  of 
sums  due  on  public  lands  sold  to  private  indi- 
viduals. The  Government  was  furthermore 
possessed  of  other  property,  which  might  be 
considered  as  additional  items  in  the  general 
account  of  debt,  such  as  lighthouses,  fortifica- 
tions, military  and  naval  arsenals,  with  their 
stores  and  supplies,  and    more  than  one  hun- 


J7Sg-i835-  73 

dred  and  eighty-five  sail  of  ships  and  armed 
vessels.  The  balances,  also,  which  were  right- 
fully due  to  the  Government  from  the  debtor 
States,  should  not  be  overlooked  in  this  con- 
nection. 

Notwithstanding  the  great  enlargement  of 
the  public  debt  in  the  period  from  1789  to 
1812,  the  whole  amount  of  it  on  Jan.  i  of 
the  last-mentioned  year  had  been  reduced  to 
1^45,120,304.53,  or  less  by  ^31,661,648.61  than 
it  was  at  the  outset  of  the  new  Government. 
The  principal  part  of  this  reduction  was  ef- 
fected after  the  year  1802,  nor  from  that  date 
was  there  any  increase  of  taxation  for  the  pur- 
pose. In  fact,  the  prosperous  condition  of  the 
permanent  revenues  permitted,  in  the  year 
1807,  the  repeal  of  the  duty  on  imported  salt. 

The  temporary  revenues,  however,  were 
augmented  in  the  year  1804.  The  piratical 
operations  carried  on  by  the  Barbary  States 
brought  our  Government,  in  that  year,  into 
hostile  conflict  with  that  power  for  their  sup- 
pression, and  a  considerable  fleet  was  de- 
spatched to  the  Mediterranean.  To  defray 
the  expenses  of  this  expedition,  an  advance  of 
two  and  a  half  per  cent  was  placed  upon  all 


74  AMERICAN  FINANCES, 

existing  ad  valorem  duties  on  imported  goods ; 
and  an  extra  ten  per  cent  was  chargeable 
against  foreign  bottoms.  These  special  duties 
were  known  as  "  Mediterranean  duties,"  and 
they  were  not  to  be  removed  until  the  ratifica- 
tion of  a  peace  with  the  regent  of  Tripoli. 
In  the  year  1806  (when  they  were  to  expire 
by  limitation),  Congress  voted  two  millions  of 
dollars  to  enable  the  President  to  open  nego- 
tiations for  the  purchase  of  territory  belong- 
ing to  Spain  lying  east  of  the  Mississippi 
River.  In  order  to  meet  this  large  appropria- 
tion, the  Mediterranean  duties  were  contin- 
ued in  force  for  two  years  longer ;  and  even 
before  the  expiration  of  this  term,  it  was 
found  necessary  to  prolong  it  on  account  of 
threatened  difficulties  between  Great  Britain, 
France,  and  the  United  States,  growing  out 
of  the  position  and  claims  of  neutral  com- 
merce. The  extension  to  the  United  States 
of  the  British  orders  in  council,  and  of  the 
Berlin  decree  of  the  Emperor  Napoleon,  com- 
pelled Congress,  on  the  32d  of  December, 
1807,  to  pass  an  Act  laying  an  embargo  upon 
all  vessels  of  those  two  powers  in  the  ports 
of    the    United    States.     This    Act    was    sue- 


1789-1835-  75 

ceeded  by  another  of  March  i,  1809,  interdict- 
ing commercial  intercourse  on  the  part  of  the 
United  States  equally  with  Great  Britain, 
France,  and  their  respective  dependencies. 

The  warlike  preparations  necessarily  accom- 
panying these  measures  largely  increased  the 
expenses  of  the  Government,  while  the  suspen- 
sion of  commerce  following  on  the  embargo 
and  the  non-importation  and  general  non-inter- 
course Acts  caused  a  great  falling  off  in  the 
revenues.  For  the  year  1808  they  were  not 
materially  impaired,  and  for  the  reason  that, 
from  the  long  credits  given,  the  receipts  of 
that  year  arose  from  the  revenues  belonging 
to  the  year  preceding.  But  for  the  year  1809, 
the  actual  receipts  of  the  Treasury  fell  short 
of  the  current  expenditures  alone  by  upwards  of 
^2,507,000.  To  make  up  this  deficit,  and  to 
provide  as  well  for  payments  on  account  of  the 
principal  of  the  debt,  recourse  was  had  to 
the  surplus  revenue  of  other  years,  which  had 
accumulated  as  a  balance  in  the  treasury.  In 
the  years  18 10  and  181 1,  the  receipts  of  the 
Government,  owing  to  a  reduction  of  expenses 
in  the  naval  department  especially,  once  more 
rose  above  the  expenditures. 


CHAPTER   III. 

THE    WAR    OF    l8l2.        INCREASE    OF    THE    PUBLIC 
DEBT.       FINANCIAL    EMBARRASSMENTS, 

By  an  Act  of  Congress  passed  June  18,  18 12, 
war  was  declared  against  Great  Britain  ;  and, 
on  debating  tlie  question  of  providing  means 
for  carrying  on  the  war,  loans  were  fixed  upon 
preferably  to  taxes.  To  the  inevitable  losses 
and  privations  of  the  coming  conflict.  Con- 
gress seemed  unwilling  to  superadd  the  burden 
of  new  taxation,  and  at  a  time,  especially, 
when  the  people  would  be  extremely  crippled 
in  their  ability  to  pay  any  considerable  revenue. 
For  it  must  be  borne  in  mind,  that  just  now 
nearly  all  the  floating  property  of  the  nation 
was  lying  idle  in  port,  brought  and  held  there 
by  the  action  of  the  embargo  ;  that  commercial 
profits  would  be  curtailed,  if  not  altogether 
ruined,  by  the  sea-forces  of  the  enemy ;  and 
that  also,  from  the  same  cause,  all  surplus 
agricultural  products  would  be  shut  out  from 
76 


foreign  markets.  It  was  observed,  on  the 
other  hand,  that  at  no  one  time  had  there 
been  in  the  country  so  much  specie,  such  an 
overplus  of  unemployed  capital,  as  at  the  pres- 
ent. The  public  stocks  were  commanding  a 
high  price,  and  so  was  every  species  of  stock : 
the  Government  credit  was  unimpaired,  and 
the  banks  were  in  possession  of  large  accumu- 
lations of  capital.  These  several  circumstances 
seemed  to  place  loans  within  easy  reach  and 
reasonable  terms :  at  all  events,  they  served 
to  shape  the  financial  policy  then  adopted,  and 
which  it  was  intended  to  adhere  to  throughout 
the  war.  Accordingly,  it  was  determined  upon 
that  the  ordinary  expenses  of  the  Government, 
and  the  interest  on  the  public  debt,  including 
also  that  upon  any  new  debt  superinduced  by 
the  war,  should  be  covered  by  taxation  ;  but 
that  the  cost  of  the  war  itself,  as  being  an 
extraordinary  expense,  was  to  be  paid  for  out 
of  borrowed  money.  In  brief,  then,  while  the 
annual  revenue  was  to  continue  as  before  on 
the  basis  of  a  peace  establishment,  the  burden 
of  providing  the  sinews  of  war  was  placed  on 
loans  only. 

Certain  duties,  then,  there  were,  which,    in 


78  AMERICAN  FINANCES, 

order  to  maintain  their  productiveness,  de- 
manded an  increase  as  the  natural  sequence 
of  a  declaration  of  war.  This  increase  was 
distributed  as  follows :  on  imported  articles, 
all  existing  duties  were  doubled  ;  a  further 
duty  of  ten  per  cent  was  added  on  goods 
brought  into  the  country  in  foreign  bottoms  ; 
and  the  tonnage  duty  on  vessels  owned  wholly 
or  partially  by  subjects  of  a  foreign  power, 
was  raised  from  fifty  cents  a  ton  to  one  dollar 
and  fifty  cents.  These  additions  to  the  several 
duties  named  were  to  be  maintained  until  one 
year  after  the  conclusion  of  peace. 

Concurrently  with  the  above  adjustment  of 
duties,  authority  was  given  to  raise  eleven 
millions  of  dollars  by  means  of  a  loan.  The 
rate  of  interest  was  by  law  limited  to  six  per 
cent,  and  the  par  or  nominal  value  of  the  stock 
was  fixed  upon  as  its  minimum  price.  Certain 
banks,  chiefly  those  in  large  commercial  cen- 
tres, were  designated  for  receiving  the  sub- 
scriptions to  this  loan  ;  and  it  was  permitted 
to  these  banks  (in  view  of  securing  subscrip- 
tions on  their  own  account)  to  retain  on  deposit 
moneys  received  by  them  for  the  loan,  until 
such  time  as  there  mijrht  be  need  of  them  for 


lySg  -  JS35.  7g 

the  public  service.  This  privilege  was  ac- 
corded also  to  some  other  banks,  which 
though  precluded  by  their  charters,  or  by 
other  reasons,  from  subscribing  to  the  loan, 
and  receiving  stock,  yet  advanced  money  to 
the  Government  under  special  contracts  of  one 
and  of  two  years. 

Out  of  the  projected  loan  of  eleven  millions, 
the  sum  actually  borrowed  was  ^10,284,700. 
And  of  this  amount,  stock  was  issued  for  only 
1^8,134,700  (which  included  $100,000  borrowed 
of  the  Committee  of  Defence  of  the  City  of 
Philadelphia  in  181 3-14).  All  this  stock  was 
made  redeemable  at  the  pleasure  of  the  United 
States  after  the  close  of  the  year  1824,  due 
notice  of  such  redemption  to  be  given  by  ad- 
vertisement in  a  public  newspaper  printed  at 
the  seat  of  Government.  There  was  annexed 
also  this  stipulation,  —  that  the  whole  amount 
of  stock  credited  at  the  time  of  redemption 
to  any  one  person  on  the  books  of  the  Treasury, 
should  be  reimbursed  in  a  single  payment. 

By  an  Act  of  June  30,  1812,  that  is  to  say, 
only  shortly  after  the  loan  for  eleven  millions 
had  been  authorized,  an  issue  of  Treasury  notes 
was  likewise  authorized,  to  the  amount  of  five 


8o  AMERICAN  FINANCES, 

millions  of  dollars,  to  form  a  part  of  the  loan. 
By  this  supplementary  enactment,  it  was  in- 
tended to  secure  the  Government  against  any 
disappointment  in  obtaining  money,  as  it  might 
be  wanted.  It  was  also  believed,  that,  by  vary- 
ing in  this  manner  the  power  of  raising  the 
loan,  its  negotiation  in  all  likelihood  would  be 
made  easier  and  more  effectual.  Even  in  the 
event  that  the  loan  of  eleven  millions  were  to 
be  fully  subscribed  to,  still  a  positive  and  inde- 
pendent issue  of  Treasury  notes  was  authorized, 
nevertheless,  provided  it  should  appear  that  the 
money  was  demanded  by  the  necessities  of 
the  war. 

This  issuing  of  Treasury  notes  was  an  ex- 
periment now  for  the  first  time  attempted. 
That  the  established  currency  of  the  country 
should  be  injuriously  interfered  with  by  them, 
was  by  no  means  contemplated.  There  was  a 
certainty  almost  that  the  negotiation  of  the  war 
loans,  as  well  as  the  enlarged  transactions  of 
the  Treasury,  would  of  necessity  impede  the 
circulating  medium,  particularly  as  the  Treas- 
ury would  always  keep  a  considerable  sum  out  of 
circulation  at  the  very  time  it  would  be  needed 
most.     Not   the   slightest   doubt   existed    that 


1789 -iSjj.  81 

Treasury  notes,  if  used  judiciously,  would  have 
the  effect  of  giving  an  increased  circulation  of 
money,  and  would  in  this  way  operate  as  a 
counterpoise  to  the  contraction  of  the  cur- 
rency, sure  to  follow  upon  the  commercial 
activity  stimulated  by  the  war,  unless  neutral- 
ized in  its  action  by  an  additional  amount  of 
money  issued  by  the  banks  or  by  the  Govern- 
ment. 

The  first  issue  of  Treasury  notes  was  readily 
put  into  circulation  within  a  year.  Looking  at 
the  security  upon  which  they  rested,  they  em- 
bodied as  safe  an  investment  as  the  Govern- 
ment was  competent  to  offer.  They  were 
receivable  in  payment  of  taxes  and  duties  ;  and, 
moreover,  as  the  duties  and  taxes  of  a  single 
year  would  exceed  in  amount  the  issue  of  notes 
for  that  year,  the  former  thus  became  indirectly 
pledged  for  the  redemption  of  the  latter.  From 
the  fact  of  their  bearing  interest,  they  pos- 
sessed in  some  respects  an  advantage  over 
other  kinds  of  money.  They  were  better  than 
cash  to  such  individual  holders  of  them  as 
needed  to  collect  by  degrees  funds  for  a  specific 
purpose  ;  while  in  the  hands  of  bankers  they 
became  more  valuable  than  specie,  from  their 


82  AMERICAN  FINANCES, 

power  of  constituting  a  reserve  fund,  thereby 
furnishing  a  basis  for  discount  as  well  as  for 
current  paper.  Also  do  we  find  that  the  banks 
were  the  largest  takers  of  these  notes. 

In  September,  1812,  the  Treasury  began  to 
negotiate  for  the  sale  of  the  notes  ;  and  nearly 
all  of  them  were  sold  by  the  31st  of  March, 
1 81 3.  They  bore  an  interest  at  the  rate  of  five 
and  two-fifths  per  cent  per  annum,  and  were 
charged  upon  the  sinking-fund.  They  were 
receivable,  not  only  for  duties  and  taxes,  but  also 
in  payment  of  public  lands,  sold  by  the  United 
States.  They  were  reimbursable  one  year 
after  the  date  of  their  issue,  and  by  delivery 
and  indorsement  were  made  transferable. 

For  the  year  181 3,  the  second  year  of  the 
war,  the  revenue  at  the  disposal  of  the  Govern- 
ment was  set  down  at  twelve  millions  of  dollars, 
including  in  this  estimate  an  unexpended  bal- 
ance of  the  loan,  and  also  of  the  Treasury-note 
issue  of  1 812.  Upon  this  showing,  it  was  mani- 
fest that  sixteen  millions  of  dollars  would  be 
required  in  order  to  balance  the  account  of 
receipts  and  expenditures  ;  and  a  loan  of  this 
amount  was  accordingly  authorized  by  an  Act 
of  Feb.  8,  18 1 3.     In  this  place  it  may  be  well 


to  remark,  that  although  a  considerable  portion 
of  the  public  stocks  had  been  sent  from  Eng- 
land, and  put  upon  the  market  here,  yet  these 
stocks,  bating  a  slight  decline  at  first,  continued 
at  par  during  the  four  last  months  of  the  year 
1 8 12,  and  this  in  face  of  the  many  additions  to 
the  public  debt. 

By  the  terms  of  the  second  loan  Act,  men- 
tioned above,  the  stock  to  be  issued  under  it 
was  to  bear  interest  not  exceeding  six  per 
cent,  and  was  to  be  reimbursable  at  the  pleas- 
ure of  the  Government,  any  time  after  an  inter- 
val of  twelve  years,  dating  from  Jan.  i,  18 14. 
A  commission  was  offered  of  one-quarter  of  one 
per  cent  for  getting  subscriptions,  but  no 
restriction  was  laid  on  the  sale  of  the  stock  below 
its  par  value.  In  view  of  facilitating  the  loan, 
and,  if  necessary,  of  improving  its  terms,  a  dis- 
cretionary power  was  confided  to  the  Executive 
to  issue  Treasury  notes,  as  part  of  the  loan, 
for  such  sums  as  he  might  deem  expedient,  but 
not  to  exceed  a  total  of  five  millions  of  dollars. 
This  power,  however,  was  not  exercised. 

On  the  20th  of  February,  18 13,  public  notifi- 
cation was  made,  inviting  subscriptions  to  the 
loan   of   sixteen   millions.      According   to    the 


84  AMERICAN  FINANCES, 

terms  offered  by  the  Government,  subscribers 
were  to  receive  for  every  one  hundred  dollars 
loaned,  a  certificate  of  six-per-cent  stock  of  one 
hundred  dollars,  together  with  an  annuity  of 
one  dollar  for  thirteen  years  from  Jan.  i,  1813. 
All  incorporated  banks  in  the  cities  of  Salem, 
Boston,  Providence,  Albany,  New  York,  Phila- 
delphia, Baltimore,  Washington,  Richmond,  and 
Charleston  were  authorized  to  open  books  of 
subscription  to  the  loan.  Under  this  first  noti- 
fication, only  $3,956,400  were  subscribed.  The 
books  were  opened  a  second  time  until  the  31st 
of  March,  upon  the  same  terms,  but  only  at 
certain  named  banks  in  New  York,  Philadel- 
phia, Baltimore,  and  Washington.  Since,  how- 
ever, the  result  of  the  first  subscription  made  it 
evident  that  the  whole  amount  of  the  loan 
could  not  be  obtained  upon  the  terms  offered, 
proposals  were  solicited  simultaneously  with 
this  second  subscription  (to  be  open  till  the 
fifth  day  of  April)  for  borrowing  the  whole  or 
any  part  of  the  sixteen  millions  which  might 
remain  yet  unsubscribed  for  on  the  ist  of  April, 
thus  leaving  it  to  persons  making  proposals,  to 
state  for  themselves  on  what  terms  they  were 
willing  to  lend  to  the  Government.     And,  again, 


1789-1835-  85 

that  persons  might  have  no  cause  for  withhold- 
ing either  subscriptions  or  proposals  from  any 
apprehension  of  committing  themselves  to  less 
favorable  terms  than  might  be  allowed  to  other 
bidders,  the  several  subscribers  to  the  loan  of 
sixteen  millions  were  at  liberty  to  claim  the 
benefit  of  any  of  the  terms  accepted  by  the 
Government.  Under  this  liberal  expedient, 
the  full  amount  of  the  loan  came  to  be  nego- 
tiated. 

The  terms  accepted  by  the  Government,  and 
which  were  submitted  to  the  option  of  all  the 
subscribers,  were  the  two  following  :  — 

1st,  The  lenders  to  receive  a  six-per-cent 
stock  (the  interest  payable  quarterly)  at  the 
rate  of  eighty-eight  per  cent ;  that  is,  one  hun- 
dred dollars  in  stock  for  eighty-eight  dollars  in 
money. 

2d,  For  every  one  hundred  dollars  in  money, 
the  lenders  to  receive  one  hundred  dollars  in 
six-per-cent  stock,  and  an  annuity  for  thirteen 
years  from  the  ist  of  January,  181 3,  of  one  dol- 
lar and  fifty  cents,  payable,  like  the  interest, 
quarter-yearly. 

These  terms,  it  is  seen,  were  equivalent  to  a 
premium    of    thirteen    dollars   and    sixty-three 


86  AMERICAN  FINANCES, 

seven-elevenths  cents  on  every  one  hundred 
dollars  loaned  to  the  Government,  and  in  actual 
interest  to  seven  and  a  half  per  cent.  Prefer- 
ence was  given  to  the  first  alternative  offered  ; 
and  the  stock,  for  the  most  part,  was  taken  at 
the  rate  of  eighty-eight  per  cent.  The  whole 
amount  of  stock  issued  was  $18,109,377.43. 
A  condition  was  attached  to  two  of  the  pro- 
posals, aggregating  $10,250,000,  which  the  Gov- 
ernment accepted ;  namely,  should  any  addi- 
tional loan  for  the  year  18 13  be  made  before  its 
close,  on  other  terms  than  those  now  offered 
and  accepted,  the  option  should  lie  with  the 
subscribers  of  applying  them  to  the  loan  of  six- 
teen millions. 

In  addition  to  the  loan  of  sixteen  millions  for 
the  service  of  the  year  18 13,  a  further  issue  of 
Treasury  notes  was  authorized,  not  to  exceed  in 
amount  five  millions  of  dollars.  These  were 
designed  to  furnish  the  means  for  redeeming 
the  notes  of  the  first  issue,  as  they  might  be- 
come due,  and  were  similar  to  the  latter  in 
every  respect. 

But,  before  the  close  of  the  year  18 13,  new 
and  unforeseen  demands  came  to  the  surface ; 
and  the  alternative  had   to   be   confronted   of 


borrowing  more  money,  or  of  issuing  Treasury 
notes  at  a  rate  far  more  rapid  than  would  be 
required  to  redeem  and  replace  those  of  the 
first  series.  Any  issue  of  Treasury  notes  be- 
yond the  original  issue  of  five  million  dollars,  it 
was  believed,  could  not  be  maintained  in  circu- 
lation without  great  difficulty,  and  risk  even  of 
depreciation.  This  view  was  strengthened  as 
well  by  the  limited  commerce  of  the  country  as 
by  the  small  amount  of  outstanding  custom- 
house bonds,  to  the  payment  of  which  the 
notes  were  applicable.  Congress,  therefore, 
made  choice  of  a  loan  to  cover  the  increased 
expenditures  of  the  current  year ;  and,  not  to 
have  the  public  service  suffer  from  delay  or 
embarrassment,  the  amount  of  the  loan  was  put 
at  ^7,500,000.  This  sum,  added  to  the  ^2,000,- 
000  of  estimated  revenue  receipts,  would  suffice 
not  only  for  the  current  year,  but  for  three 
months  of  the  year  1814  also.  A  new  issue  of 
Treasury  notes  having  thus  been  obviated,  the 
amount  of  these  notes  outstanding  Jan.  i,  18 14, 
was  ^4,907,300, — an  amount  not  in  excess  of 
what  a  steady  and  effective  demand  required. 
The  second  series  of  notes  was  not  fully  issued 
till  Feb.  21,  1 8 14. 


88  AMERICAN  FhXANCES, 

At  the  same  session  of  Congress  in  which 
authority  was  given  to  raise  the  loan  of  $7,500,- 
000,  a  system  of  internal  duties  was  also 
established.  This  latter  measure  had  in  view 
to  smooth  the  way  for  the  loan  as  well  as  to 
obviate  any  embarrassing  terms.  For  it  was 
now  clearly  seen  that  a  revenue  depending 
almost  wholly  upon  foreign  commerce,  as  that 
of  the  United  States,  did  not  afford,  and  owing 
to  its  unstable  character,  and  liability  to  be 
ruined  by  war,  could  not  afford,  security  even 
for  the  regular  payment  of  the  interest  on 
the  public  debt.  With  the  exception  of  a 
small  duty  upon  imported  wire,  no  new  source 
of  revenue  had  been  opened  since  the  com- 
mencement of  the  war.  It  was  found  that  the 
receipts  from  revenue  had  fallen  more  than  five 
millions  of  dollars  below  the  amount  required 
to  meet  expenditures,  calculated  upon  the  basis 
of  a  peace  establishment ;  that  is  to  say,  below 
an  amount  necessary  to  provide  for  the  ordinary 
expenditures  of  the  Government  and  the  inter- 
est upon  the  outstanding  public  debt.  This 
precarious  state  of  the  finances  had  already 
injuriously  affected  the  public  credit,  and  the 
unfavorable   terms   of   the   last   loan  were   ac- 


ijSg  -  1S35.  89 

counted  for  by  the  omission  on  the  part  of 
Congress  to  adopt  a  system  of  internal  taxes. 
Any  further  delay  in  making  an  increase  of 
taxation  was  therefore  no  longer  possible. 

The  new  duties  now  established  would  yield, 
it  was  estimated,  an  annual  revenue  of  five 
million  dollars.  In  determining  subjects  for 
taxation,  regard  was  had  to  such  as  former 
experience  had  taught  to  be  not  only  most 
productive,  but  also  acceptable  to  the  people. 
The  term  of  these  taxes  was  fixed  at  one  year 
after  the  end  of  the  war :  hence  they  became 
soon  known  as  "war-taxes."  They  consti- 
tuted,—  a  direct  tax  of  1^3,000,000  upon  lands, 
dwelling-houses,  and  slaves ;  a  duty  upon  re- 
fined sugar,  upon  carriages  ;  upon  licenses  to 
distillers  of  spirituous  liquors  ;  upon  licenses  to 
retailers  of  wines,  spirituous  liquors,  and  foreign 
merchandise ;  and  upon  bank-notes,  obligations 
discounted  by  banks,  and  bills  of  exchange, 
these  latter  collectible  by  means  of  stamps. 
A  duty  of  twenty  cents  per  bushel  was  also 
placed  upon  imported  salt. 

On  the  settlement  of  these  new  duties,  a 
notification  of  the  Treasury  Department  was 
issued  on  the  30th  of  August,  1813,  setting  forth 


90  AMERICAN  F/NAA'CES, 

that  proposals  would  be  received  until  the 
twenty-fifth  day  of  December  following,  for 
loaning  the  sum  of  1^7,500,000,  either  the  total 
amount  or  separate  portions  of  it.  The  rate 
of  interest  was  not  limited  by  the  terms  of  the 
law,  but  it  was  therein  provided  that  no  certifi- 
cate of  stock  should  be  sold  at  a  rate  less  than 
eighty-eight  per  cent.  The  stock  also  was  made 
reimbursable  at  any  time  after  an  interval  of 
twelve  years  dating  from  Jan.  i,  18 14.  No 
proposal  was  to  be  received  for  any  sum  less 
than  one  hundred  thousand  dollars,  but  indi- 
vidual subscriptions  might  be  incorporated  into 
a  single  proposal  for  this  amount  ;  and  a  com- 
mission of  one-eighth  of  one  per  cent  was 
allowed  for  aggregating  such  subscriptions. 
Also,  to  deal  equitably  in  a  matter  involving  a 
variety  of  terms  offered,  it  was  made  optional 
with  any  persons  whose  proposals  might  be 
accepted,  to  adopt,  instead  of  their  own  terms, 
the  terms  of  any  other  subscriber  whose  pro- 
posal had  equally  been  accepted.  The  whole 
amount  loaned  was  payable  by  instalments  (as 
had  been  the  case  with  the  previous  loans)  into 
certain  banks  designated  by  the  Treasury. 
After  paying  the  first  instalment,  the  remaining 


i7Sg-i835-  91 

ones  might  be  combined  in  a  single  payment ; 
but,  in  this  case,  interest  was  only  allowed  as  if 
each  instalment  had  been  paid  in  accordance 
with  the  public  notification.  The  sum-total  of 
all  the  proposals  received,  and  which  were  at 
various  rates,  amounted  to  $12,791,500. 

After  rejecting  the  least  favorable  rates, 
the  sum  that  was  accepted  on  loan  was  appor- 
tioned among  the  successful  subscribers  by 
a  uniform  rule.  The  rate  at  which  the  loan 
was  taken  was  eighty-eight  dollars  and  twenty- 
five  cents  in  money  for  every  one  hundred 
dollars  in  stock,  bearing  six-per-cent  interest. 
The  amount  of  this  stock  issued  for  the  pres- 
ent loan  was  $8,498,581.95,  being  a  discount 
of  1^998,58 1.95. 

The  Congress  which  met  in  regular  session 
in  December,  1813,  entered  at  once  upon  a 
consideration  of  the  ways  and  means  for  the 
year  18 14.  The  deficit  in  the  revenue,  bclov/ 
the  appropriations  made,  was  estimated  to  be 
not  far  from  thirty  million  dollars.  The  only 
resource  drawn  upon  to  meet  it  was  the  public 
credit.  By  an  Act  of  the  4th  of  March,  18 14, 
authority  was  granted  to  issue  five  million 
dollars  of  Treasury  notes  absolutely,  and  with 


92  AMERICAN  FINANCES, 

it  was  given  a  discretionary  power  to  issue  five 
millions  more  with  the  understanding  that  these 
latter  should  be  deemed  and  held  as  a  portion 
of  any  loan  authorized  during  the  session. 

Under  sanction  of  an  Act  of  March  24,  18 14, 
the  Government  was  empowered  to  provide  for 
a  loan  of  twenty-five  million  dollars.  By  the 
terms  of  the  Act,  the  stock  was  made  reim- 
bursable at  any  time  after  the  expiration  of 
twelve  years  from  the  following  January  ;  but 
no  limitation  was  placed,  either  upon  the  rate 
of  interest,  or  the  price  of  the  stock. 

This  loan  was  so  much  larger  than  any 
heretofore  authorized  in  the  United  States,  that 
its  announcement  in  Congress  gave  rise  to  a 
very  earnest  and  interesting  debate  as  to  the 
ability  of  the  country  to  furnish  it.  The 
advocates  of  the  measure  based  their  argu- 
ment upon  what  they  considered  to  be  obvious 
and  reliable  statistics.  For  instance,  upon  a 
total  property  valuation  of  $2,567,480,000,  there 
was  estimated  an  annual  income  to  the  nation 
of  $237,649,600.  The  maximum  amount  of 
currency  required  for  circulation  was  placed 
at  one-fifth  of  this  amount,  making  it  conse- 
quently  $47,569,120.      The   bank   capital  was 


I78g-j8s5-  93 

Stated  at  ^75,000,000,  which  was  computed  to 
sustain  a  circulation  in  notes  and  discount  of 
^100,000,000.  Now,  the  difference  between  this 
last  sum  of  ^100,000,000  and  the  $47,569,120 
of  circulating  medium  actually  called  for  by 
the  productive  industry  of  the  country,  repre- 
sented the  estimated  ability  of  the  moneyed 
capitalists  to  loan,  namely,  $52,430,880.  And 
of  this  sum  Congress  now  proposed  to  borrow 
$30,000,000.  These  computations,  together 
with  the  argument  they  were  sought  to  sus- 
tain, were  attacked  by  the  opponents  of  the 
loan,  and  characterized  as  erroneous,  inconclu- 
sive, and  misleading. 

Although  the  discussion  resulted  in  the 
adoption  of  the  measure,  it  was  thought,  how- 
ever, that  an  attempt  to  obtain  the  whole 
twenty-five  millions  at  one  subscription  would 
not  prove  so  successful  as  if  only  a  portion  of 
it  were  called  for.  A  loan  of  ten  millions  was 
accordingly  announced,  and  proposals  solicited 
for  subscriptions  to  it.  The  sole  conditions 
laid  down  by  the  Government  respecting  it 
were,  that  the  stock  issued  should  bear  inter- 
est at  six  per  cent,  payable  quarterly,  and 
that    it    should   not    be    redeemable    until    the 


94  AMERICAN  FINANCES, 

thirty-first  day  of  December,  1826.  A  com- 
mission of  one-fourth  of  one  per  cent  was 
allowed  upon  all  subscriptions,  but  no  subscrip- 
tion was  accepted  for  less  than  $25,000 ;  and 
to  subscribers  the  privilege  was  given  of  select- 
ing for  themselves  any  of  the  terms  that  might 
be  accepted  by  the  Government. 

The  sums  offered  for  this  loan  reached  a 
total  of  $12,466,806.  As,  however,  all  offers 
made  at  rates  less  than  eighty-eight  per  cent 
were  rejected,  the  amount  actually  taken  be- 
came thereby  reduced  to  $7,935,581. 

A  condition  annexed  to  one  of  the  offers 
resulted  in  a  stipulation  which  the  Govern- 
ment had  reason  afterwards  to  regret.  It  was 
to  the  effect,  that,  if  any  of  the  remaining 
portion  of  the  twenty-five  millions  was  bor- 
rowed on  terms  more  favorable  to  lenders,  the 
benefit  of  such  terms  should  be  likewise  ex- 
tended to  holders  of  the  stock  issued  for  the 
loan  of  ten  millions.  This  condition  had  some 
sanction  in  precedent ;  and  the  Government, 
already  anticipating  the  early  return  of  peace, 
was  influenced  in  acceding  to  it,  in  this  in- 
stance, by  the  importance  of  upholding  mean- 
while the  price  of  the  stock,  and  so  maintaining 


1789-1833-  95 

the  credit  of  the  country.  The  condition  re- 
ferred to  was  annexed  to  an  offer  of  five 
million  dollars;  and  to  reject  it  would  have 
reduced  the  amount  obtained  to  less  than  three 
million  dollars,  —  a  sum  wholly  inadequate.  By 
depressing  the  stock  to  eighty-five  per  cent, 
only  a  little  more  than  six  millions  could  have 
been  secured,  which  amount  still  fell  short  of 
supplying  the  deficiency  of  the  Treasury. 

Shortly  after,  a  loan  of  six  million  dollars 
was  opened,  under  the  power  contained  in  the 
Act  of  the  24th  March,  18 14.  It  now  became 
evident  that  the  condition  insisted  upon  by 
the  contractors  for  the  ten-million  loan  was 
the  most  injurious  to  the  Government  that 
could  have  been  devised  ;  and  this  because  it 
made  it  for  the  interest  of  the  contractors  to 
depress  the  price  of  the  public  stocks  rather 
than  to  sustain  it.  Except  the  case  of  a  few 
small  offers,  the  best  terms  the  Government 
could  now  command,  and  per  force  accepted, 
were  at  the  rate  of  eighty  dollars  in  money 
for  one  hundred  dollars  of  six-per-cent  stock. 
The  market-price  of  this  stock  hardly  ex- 
ceeded eighty  per  cent ;  nor  was  there  any 
prospect    of    the    Government's    obtaining   on 


96  AMERICAN  FINANCES, 

better  terms  the  money  which  had  become  so 
indispensable  to  its  present  needs.  In  virtue 
of  the  condition  annexed  to  their  contracts, 
the  holders  of  the  ten-million  loan  demanded 
and  received  a  premium  of  eight  per  cent  over 
and  above  the  twelve  per  cent  already  paid  to 
them. 

The  proceeds  in  money  of  this  second  loan 
came  to  ^2,520,300.  Upon  terms  similar  to 
those  already  allowed,  additional  stock  was 
issued,  which  went  in  payment  of  contracts 
made  by  the  War  Department,  and  of  other 
contracts  entered  into  with  certain  States  and 
cities  which  had  advanced  money  for  fortifica- 
tions, supplies,  payments  to  the  militia,  etc. 
The  total  amount  of  stock  issued  under  the 
loan  of  ten  millions  was  1^9,919,476.25  ;  and 
under  the  loan  of  six  millions,  $5,384,134.87. 
Subsequently,  further  sums  w^ere  raised  from 
time  to  time,  under  authority  of  this  same  Act ; 
and  undesignated  stock,  amounting  to  $746,- 
403.31,  was  issued  therefor  at  special  rates 
varying  from  eighty  to  ninety-five  per  cent. 
The  total  discount  paid  upon  these  later  con- 
tracts summed  up  $93,868.95. 

The  difficulties  had  now  become  so  great  in 


lySg  - 1835.  c,j 

obtaining  at  home  the  sums  required  for  the 
pubHc  service,  that  the  Government  at  last 
determined  to  try  the  market  in  Europe.  At 
an  earlier  period,  the  United  States  had  bor- 
rowed money  there  on  favorable  terms  ;  and, 
from  having  punctually  and  faithfully  fulfilled 
their  engagements,  it  was  believed  their  credit 
abroad  was  on  a  firm  and  favorable  footing. 
The  necessary  instructions  and  powers  were 
therefore  given  for  negotiating  a  loan  for  six 
million  dollars;  and  six -per -cent  stock  was 
transmitted  abroad,  with  directions  for  its  sale. 
The  attempt,  however,  proved  unsuccessful, 
and  no  sale  of  stock  was  made. 

As  a  consequence  of  the  failure  to  obtain  a 
sufficient  supply  of  money  by  the  sale  of  stock, 
either  at  home  or  abroad,  the  issue  of  Treasury 
notes,  authorized  by  the  Act  of  March  4,  1814, 
was  begun  at  once,  without  waiting  for  the  ma- 
turing of  those  of  the  previous  issue.  It  was 
now  no  longer  in  view  to  limit  the  amount  in 
circulation  to  five  million  dollars  ;  and,  in  order 
to  facilitate  the  increase  proposed,  notes  were 
prepared  of  the  denomination  of  twenty  dollars. 
By  thus  making  the  notes  of  lesser  amount 
than    heretofore,   they   passed    readily   into    a 


98  AMERICAN  FINANCES, 

more  numerous  class  of  moneyed  transactions. 
And  although  less  interest  was  paid  on  Treas- 
ury notes  than  for  the  money  obtained  on  the 
funded  stock,  yet  the  certainty  of  their  repay- 
ment at  the  end  of  one  year,  and  the  facility 
offered  by  them  for  remittances  and  other 
commercial  transactions,  had  given  them  a 
currency  which  might  now  be  enlarged  upon, 
in  view  especially  of  the  recent  increase  of 
taxes  for  which  they  were  receivable.  The 
speedy  issue  of  Treasury  notes  from  the  month 
of  March  caused  the  amount  in  circulation  to 
reach,  by  September  following,  nearly  to  eight 
million  dollars.  Of  these  outstanding  notes, 
1^4,457,069.80,  principal  and  interest,  were 
payable  during  the  last  quarter  of  the  year, 
chiefly  at  Boston,  New  York,  and  Philadelphia. 
A  portion  of  these  were  now  to  be  replaced  by 
new  notes,  leaving  still  in  circulation  between 
six  and  seven  million  dollars.  And  the  expe- 
rience of  two  years  had  shown  that  this  was 
nearly  as  large  an  amount  of  them  as  could 
freely  and  easily  be  circulated,  so  long  as  the 
rest  of  the  other  circulating  paper  medium  of 
the  country  remained  unembarrassed,  and  held 
its  own  in  the  public  confidence. 


It  was  at  this  juncture  that  occurred  the 
suspension  of  specie  payments  by  all  the  banks 
in  the  country  except  those  of  the  New-Eng- 
land States.  The  operations  of  the  Treasury 
were  at  once  thrown  into  embarrassment  by 
this  untoward  event.  The  circulation  of  bank- 
notes became  at  once  confined  within  the 
limits  of  the  State  where  they  were  issued  ; 
the  notes  of  New  York  and  Philadelphia  would 
not  be  received  in  Boston ;  nor  would  those  of 
Baltimore  or  of  the  District  of  Columbia 
answer  for  payments  to  be  made  in  Philadel- 
phia. As  the  bank-notes,  in  this  way,  lost 
their  general  credit  and  circulation,  so  the 
Treasury  Department  was  deprived  of  its 
former  facilities  in  remitting  money,  and  be- 
came still  more  helpless  in  not  possessing 
authority  to  pay  the  required  rate  of  exchange 
for  the  transfer  of  its  bank-credits  from  places 
in  which  they  were  lying  idle  to  others  where 
they  were  needed  to  meet  public  engagements. 
The  bank-credits,  amounting  to  about  ;^2,5oo,- 
000,  that  were  scattered  over  the  whole  country, 
became  almost  useless  ;  while  the  credits  at 
the  three  principal  offices  where  payments  on 
the  public  debt  were  made,  —  in  Boston,  New 


lOO  AMERICAN  FINANCES, 

York,  and  Philadelphia,  —  soon  became  ex- 
hausted. As  a  further  consequence,  therefore, 
attributable  chiefly,  if  not  entirely,  to  the  sus- 
pension of  specie  payments,  the  dividends  on 
the  funded  debt  were  not  paid  punctually,  nor 
were  the  Treasury  notes  discharged  at  matu- 
rity. 

In  this  state  of  things,  neither  the  public 
credit,  nor  the  use  of  Treasury  notes,  could  any 
longer  be  preserved.  Only  the  most  needy 
creditors,  contractors  in  distress,  commissaries, 
quartermasters,  and  navy  agents,  acting  as 
public  officials,  were  found  willing  to  accept 
them  ;  indeed,  no  sooner  were  they  issued,  than 
they  at  once  fell  into  the  hands  of  the  collectors 
in  payment  of  taxes,  defeating  in  this  way  the 
only  remaining  hope  of  a  productive  revenue. 
Thus  the  current  supply  of  money  from  imports, 
from  internal  duties,  and  from  the  sale  of  pub- 
lic lands,  ceased  to  afford,  as  heretofore,  the 
data  for  any  rational  estimate,  or  to  be  relied 
upon  as  a  reserve  in  providing  for  the  dividends 
upon  the  funded  debt.  The  authority  to  bor- 
row money  had  lost  its  efficacy.  The  difficulty 
already  experienced  in  securing  loans,  as  well 
as  the  stringent  terms  forced  upon  the  Govern- 


1789-1835.  TOI 

ment,  showed  plainly,  that,  if  loans  were  to  be 
further  resorted  to,  only  higher  and  in  effect 
ruinous  terms  would  have  to  be  offered  to  cap- 
italists for  the  use  of  their  money. 

Public  credit  could  now  hardly  be  said  to 
exist.  The  Government  creditors  declined  to 
receive  drafts  on  banks  outside  their  own 
States ;  neither  would  they  subscribe  the 
amount  of  their  claims  to  a  public  loan,  nor 
accept  payment  of  them  in  Treasury  notes.  It 
was  now  seen  to  be  inevitable,  that,  by  the 
close  of  the  year  18 14,  there  would  be  a  deficit 
of  more  than  seventeen  million  dollars,  con- 
sisting mainly  of  unpaid  balances  of  appro- 
priations. No  help  could  come  from  the 
Treasury,  as  its  resources  of  every  sort  —  cash, 
revenue,  and  loans  —  were  already  exhausted. 
The  President  resolved,  therefore,  to  summon 
Congress  in  extra  session  in  the  month  of  Sep- 
tember. 

Beset  by  all  the  difficulties  of  a  deficient 
revenue,  a  suspended  circulating  medium,  and 
a  depressed  credit,  it  was  not  without  the 
greatest  solicitude  that  Congress  perceived,  on 
its  assembling,  that  upwards  of  forty  million 
dollars  had  to  be  raised  for  the  service  of  the 


I02  AMEFTCAN  FINANCES, 

year  1815  ;  and,  moreover,  there  remained  no 
possible  way  of  effecting  this  except  by  an 
appeal  to  public  credit  through  the  medium  of 
Treasury  notes  and  loans. 

The  chief  cause  of  the  existing  depreciation 
in  the  public  credit  was  traceable  to  an  inade- 
quate system  of  taxation.  The  revenue  had 
again  fallen  below  the  expenditures  of  the  former 
peace  establishment,  and  this  second  time  to 
the  extent  of  ^5,300,000.  This  fact  compelled 
a  review  of  the  financial  plan  adopted  at  the 
commencement  of  the  war ;  and  it  was  decided 
that  the  theory  of  defraying  all  extraordinary 
expenses  by  means  of  successive  loans,  had 
proved  itself  inoperative,  and  must  be  aban- 
doned. The  actual  wealth  of  the  country  was 
now,  in  its  stead,  to  be  put  under  requisition  ; 
having  remained  hitherto  almost  untouched, 
considering  the  variety  of  its  natural  products 
and  industrial  pursuits. 

In  pursuance  of  this  new  policy,  the  existing 
taxes,  at  the  special  session  of  September,  1814, 
were  largely  increased,  and  new  ones  created. 
The  direct  tax  was  raised  to  the  yearly  sum  of 
six  million  dollars,  and  was  extended  to  the 
District  of  Columbia  for  the  first   time.     The 


178Q-183S.  T03 

duty  on  carriages  was  raised,  and  made  to  in- 
clude the  harness  :  on  distilled  spirits  a  duty  of 
twenty  cents  per  gallon  was  imposed,  with  five 
cents  extra  if  foreign  materials  were  used,  and 
this  in  addition  to  the  duty  already  payable  for 
licenses.  The  duties  on  sales  by  auction,  and 
on  licenses  to  retail  wines,  spirituous  liquors, 
and  foreign  merchandise,  were  doubled ;  and  the 
rates  of  postage  were  increased  fifty  per  cent. 
Upon  gold  and  silver  watches,  upon  household 
furniture,  and  various  manufactured  articles, 
there  were  laid  new  duties,  both  specific  and 
ad  valorem.  As  to  the  duties  on  domestic 
manufactures,  it  was  stipulated,  that,  so  long 
as  they  were  maintained,  no  reduction  of  duty, 
then  payable  on  the  imported  articles  of  the 
same  description,  should  take  place.  The  faith 
of  the  United  States  was  pledged  that  all  these 
duties  and  taxes,  or  others  equally  productive, 
should  be  permanently  laid,  levied,  and  col- 
lected until  the  terms  of  the  contracts  respect- 
ing the  payment  of  the  principal  and  interest  of 
the  public  debt  should  be  carried  out. 

The  yearly  value  of  these  increased  duties 
was  estimated  at  ^15,500,000,  a  sum  which 
raised  the  national  revenue  for  the  year  1815, 


104  AMERICAN  FINANCES, 

independently  of  the  use  of  credit,  to  something 
more  than  twenty-six  million  dollars.  Out  of 
this  amount,  not  only  the  current  service  of  the 
Government  and  the  interest  of  the  public  debt, 
including  therein  the  redemption  of  the  Treas- 
ury notes,  were  amply  provided  for,  but  also  the 
payment  of  all  liquidated  balances  of  accounts, 
leaving  besides  a  handsome  surplus  towards 
defraying  a  considerable  portion  of  the  war 
expenses. 

The  next  step,  on  the  part  of  Congress,  was 
to  relieve  the  Treasury  from  the  immediate 
pressure  of  demands  upon  it,  amounting  to 
nearly  fourteen  million  dollars,  and  to  be  paid 
during  the  last  quarter  of  the  year  1814.  As  a 
portion  of  these  demands  consisted  in  the  pay- 
ment of  Treasury  notes,  an  Act  was  passed  on 
Nov.  15,  1 8 14,  by  which  such  notes  as  matured 
on  or  before  Jan,  i,  1815,  were  made  receiv- 
able (at  par  and  accrued  interest)  in  payment  of 
subscriptions  to  all  loans ;  and  further,  for  the 
very  purpose  of  absorbing  the  claims  of  the 
Treasury  notes,  a  new  loan  of  three  millions  was 
especially  authorized.  These  measures,  how- 
ever, brought  but  little  relief,  if  any,  having 
been  passed  too  late  in  the  year.     Thus  it  hap- 


J78g-iS35-  1 05 

pened,  that  on  the  ist  of  January,  18 15,  there 
were  in  notes  due,  but  unpaid,  $2,799,220  ;  all 
in  the  cities  of  Boston,  New  York,  and  Phila- 
delphia. 

Still  further  to  facilitate  and  complete  a 
settlement  of  the  accounts  of  the  year  18 14, 
another  Act  was  passed,  giving  authority  for 
an  issue  of  Treasury  notes  in  two  separate 
amounts,  —  the  one,  not  to  exceed  1^7,500,000, 
and  which  was  to  be  credited  to  the  two  loans 
authorized  under  the  Acts  of  March  24  and 
Nov.  15,  1 8 14,  the  full  amount  of  which  had 
not  been  actually  borrowed  ;  and  the  other,  for 
1^3,000,000,  which  was  to  supply  a  deficiency  in 
the  appropriations  for  the  expenses  of  the  War 
Department.  These  new  notes  were  similar  to 
those  issued  hitherto  in  every  respect,  except 
that  the  payment  of  interest  and  of  the  princi- 
pal were  not,  as  in  the  case  of  previous  issues, 
charged  upon  the  sinking-fund,  but  upon  any 
funds  in  the  Treasury  not  otherwise  appropri- 
ated. 

These  new  issues  of  Treasury  notes  were 
made  under  a  determination  to  abandon,  as  far 
as  practicable,  the  negotiation  of  loans,  and  to 
rely  for  the  time  to  come  upon  Treasury  notes. 


I06  AMERICAN  FINANCES, 

For  such  a  scheme,  the  present  seemed  a  most 
propitious  opportunity.  Ever  since  the  sus- 
pension of  specie  payments,  which  restricted 
bank-notes  not  only  to  the  States,  but  even  to 
the  particular  localities  in  which  they  were 
issued,  there  had  been  no  adequate  circulating 
medium  common  to  the  citizens  of  the  United 
States  as  such.  As  the  moneyed  transactions 
of  private  life  were  at  a  stand-still,  and  the 
fiscal  operations  of  the  Government  put  to 
great  inconvenience,  the  want  became  univer- 
sally acknowledged  of  some  medium  which, 
itself  resting  on  a  firm  and  solid  basis,  might 
unite  public  confidence,  and  betoken,  not  a 
local,  but  a  general,  circulation.  As  a  remedy, 
then,  for  the  disordered  state  of  the  currency, 
it  was  determined,  by  a  special  modification  of 
the  Treasury  notes,  to  make  them  a  substitute 
for  bank-notes  and  specie,  answering  at  the 
same  time  as  a  circulating  medium  between 
the  States.  By  this  measure,  it  was  not  in  the 
least  intended  or  insinuated  that  the  accept- 
ance of  the  Government  paper  should,  in  the 
course  of  payments  and  receipts,  be  made  com- 
pulsory with  the  people.  A  tender-law  would 
have  been  regarded  at  the  time  as  a  desperate 


lySg-iSjS-  107 

expedient,  and  unworthy  of  honest  and  enlight- 
ened statesmanship. 

Authority  was  accordingly  conferred,  by  an 
Act  passed  Feb.  24,  18 15,  to  issue  twenty-five 
million  dollars  in  Treasury  notes,  which  in 
principle  were  to  differ  essentially  from  any 
of  previous  issues.  The  new  notes,  while  of 
course  receivable  in  all  payments  due  to  the 
Government,  were  subject,  in  such  cases,  to  be 
re-issued ;  and  their  denominations  were  ex- 
pressly small  enough  to  meet  with  ready  circu- 
lation for  ordinary  current  needs.  No  specific 
period  was  indicated  for  paying  the  principal 
and  interest  of  the  notes  :  only  they  were  con- 
vertible, at  the  pleasure  of  holders,  into  certifi- 
cates of  funded  stock,  reimbursable  at  any 
time  after  Dec.  31,  1824.  These  notes  were  of 
two  kinds  :  the  one  which  was  made  payable 
to  bearer  bore  no  interest,  and  was  trans- 
ferable by  delivery ;  the  other  was  payable  to 
order,  transferable  by  indorsement,  and  bore 
interest  at  the  rate  of  five  and  two-fifths  per 
cent.  The  former  class  included  notes  of  de- 
nominations less  than  one  hundred  dollars,  and 
were  fundable  at  seven  per  cent ;  the  latter  at 
six  per  cent :   but  any  notes  of  one  hundred 


I08  AMERICAN  FINANCES, 

dollars  and  upwards  were  privileged,  at  the  dis- 
cretion of  the  Secretary  of  the  Treasury,  to 
conform  to  either  description.  It  was  also  pro- 
vided at  the  same  time,  that  holders  of  Treas- 
ury notes  of  any  prior  issue  might  convert 
them,  at  par  value  with  accrued  interest,  into 
funded  stock  bearing  six-per-cent  interest. 

Besides  these  twenty-five  million  dollars  in 
Treasury  notes,  there  were  yet  remaining 
seventeen  million  dollars  liable  to  be  raised, 
either  by  loans  or  notes,  under  Acts  passed  in 
the  year  1814,  but  not  carried  into  full  effect. 
However,  even  counting  in  these  resources  in 
abeyance,  it  was  found,  that,  in  order  to  com- 
plete the  ways  and  means  necessary  to  balance 
receipts  and  expenditures  at  the  close  of  the 
year  1815,  a  further  sum  of  fifteen  millions 
would  be  requisite.  To  cover  this  anticipated 
deficit.  Congress  had  in  contemplation  another 
loan  ;  but  before  it  came  to  be  acted  upon,  the 
Treaty  of  Ghent  was  announced.  This  ended 
the  war,  and  the  measure  gave  way  to  others 
more  expedient.  In  fact,  the  news  of  the  peace 
reached  the  country  before  the  Senate  had 
acted  definitely  upon  the  Treasury-note  Bill. 
By   reason    of    this   information,    the   interest 


1789-1835-  I09 

upon  the  stock,  into  which  the  notes  were 
made  convertible,  was  reduced  by  the  Senate 
below  the  figures  originally  adopted  in  the 
Lower  House. 

Circumstances  did  not  allow  of  a  prolonged 
trial  of  the  new  plan  of  finance ;  and  it  is 
therefore  not  possible  to  ascertain  what  its 
ultimate  effects  would  have  been  in  the  matter 
of  restoring  the  public  credit,  which  was  the 
leading  purpose  of  its  adoption.  Certain  it  is, 
however,  that,  in  the  interval  between  the  adop- 
tion of  the  new  policy  and  the  announcement 
of  peace,  the  liberal  display  of  national  re- 
sources, made  in  behalf  of  the  public  creditors, 
failed  to  exert  its  expected  and  natural  influ- 
ence —  such  is  the  difficulty  in  rescuing  from 
reproach  a  credit  over  which  suspicion  and 
doubt  have  cast  their  blighting  shadow.  De- 
spite even  of  the  best  system  of  finance,  there 
were  undoubtedly  causes,  which,  as  they  grew 
out  of  the  war,  so  they  concurred,  while  it 
lasted,  to  depress  the  public  credit.  Not  to 
lay  any  special  stress  upon  the  doubtful  issue 
of  the  contest,  there  was  at  all  events  the  un- 
certain term  of  its  continuance  to  impress  the 
public  mind  with  a  corresponding  influence  as 


no  AMERICAN  FINANCES. 

to  what  extent  the  aid  of  loans  would  be  de- 
manded for  the  public  exigencies.  Now,  how- 
ever, that  the  war  was  terminated,  a  state  of 
affairs  had  supervened  which  gave  to  the  entire 
public  debt  a  fixed  and  ascertainable  character. 
No  apprehension  existed  that  the  most  ample 
provision  would  be  made  for  the  punctual  pay- 
ment of  the  interest  as  well  as  for  the  gradual 
extinguishment  of  the  principal  of  the  debt, 
for  Congress  had  always  shown  itself  inflexible 
in  its  adherence  to  the  faith  and  policy  of 
legislative  pledges.  Upon  the  restoration  of 
peace,  therefore,  proofs  of  financial  confidence 
became  apparent  at  once,  of  which  the  fiscal 
transactions  of  the  Government  reaped  prac- 
tical advantage. 


CHAPTER  IV. 

PEACE  WITH  GREAT  BRITAIN.  THE  PROTECTIVE 
TARIFF.  EXTINGUISHMENT  OF  THE  PUBLIC 
DEBT. 

The  financial  outlook,  on  the  termination  of 
the  war  with  Great  Britain,  was  not  such  as  to 
afford  an  immediate  prospect  of  relief  to  the 
public  credit  from  still  further  demands  upon 
it.  It  had  to  be  used,  not  only  for  the  greater 
convenience  of  the  Treasury,  but  in  the  pres- 
ent juncture  an  appeal  to  credit  seemed  essen- 
tial even  to  its  solvency.  It  was  discovered, 
in  the  first  place,  that  the  expenditures  of  the 
year  1815,  arising,  for  the  most  part,  out  of 
unpaid  war  claims,  were  liable  to  run  up  to 
fifty  million  dollars ;  then,  again,  that  the 
prospective  increase  of  revenue  from  customs 
could  not  be  made  available  till  1816,  owing 
to  the  credits  given  in  collecting  it  ;  and 
furthermore,  that  the  returns  of  the  new  in- 
ternal taxes  would  not  bce:in  to  be  felt  much 


112  -  /  M  ERICA  N  FIN  A  A'CES, 

before  the  same  time.  Thus  the  actual  revenue 
at  command  for  the  year  1815  was  not  able 
to  be  estimated  at  more  than  $18,200,000. 
And  this  total  was  itself  liable  to  be  absorbed 
by  outstanding  Treasury  notes,  even  before  it 
reached  the  Treasury. 

The  first  move  in  this  state  of  things  was 
to  free  this  actual  revenue  of  its  impediments, 
and  thus  bring  it  directly  into  the  hands  of  the 
Treasury.  Accordingly,  by  an  Act  of  March 
3,  1 81 5,  a  loan  was  authorized  which  was  made 
payable  at  the  pleasure  of  the  Government 
within  twelve  years  dating  from  the  last  day 
of  December,  1815.  It  was  fixed  at  1^18,452,- 
800,  as  this  sum  exactly  balanced  the  claims 
of  the  outstanding  Treasury  notes  ;  and  these 
notes  were  also  made  receivable  for  subscrip- 
tions to  this  new  loan.  Now  although  the 
terms  of  the  above-mentioned  Act  actually  cov- 
ered all  the  outstanding  notes,  yet,  as  some 
had  been  issued  under  Acts  making  them  a 
charge  upon  the  sinking-fund,  it  was  judged 
to  be  more  expedient,  for  the  present,  to  con- 
fine to  this  latter  class  the  benefit  of  subscrib- 
ing to  the  loan.  Thus,  not  the  full  amount 
authorized  was  now  offered,   but    only  twelve 


ij8g  - 1835.  1 1 3 

millions.  The  balance  of  the  loan  was  for  the 
time  being  subject  to  a  contingency.  There 
was,  however,  a  provision  of  a  previous  law  by 
which  all  Treasury  notes,  at  the  pleasure  of 
the  holders,  might  be  converted  at  their  par 
value  and  interest  into  certificates  of  funded 
debt  bearing  six-per-cent  interest.  Were  it 
now  to  happen,  that,  instead  of  being  thus 
funded,  the  notes  should  all  be  presented  for 
payment,  the  Treasury  was  at  liberty,  in  that 
event,  to  put  out  the  remainder  of  the  loan  in 
order  to  meet  their  full  payment.  The  general 
purpose,  then,  of  the  twelve-million  loan  was, 
(i)  to  absorb  a  portion  at  least  of  the  Treasury- 
note  debt,  (2)  to  obtain  funds  for  paying  off 
the  unsubscribed  arrearages  of  that  debt,  and 
(3)  to  aid  the  Treasury  by  furnishing  it  with 
such  a  supply  of  the  local  currency  of  different 
places,  as  should  hold  some  proportion  to  prob- 
able demands  upon  it  in  those  localities. 

By  a  public  notice  given  March  10,  181 5, 
proposals  were  invited  for  a  six-per-cent  loan, 
payable  in  money,  or  in  approved  bank-notes, 
or  in  Treasury  notes.  These  several  particulars 
were  to  be  stated  in  any  proposal  that  might 
be  presented ;  viz.,  the  amount  of  the  loan  to 


114  ^  ME  RICA  N  FIN  A  NCES, 

be  taken,  the  rate  at  which  the  stock  would  be 
received,  the  instalments  for  its  payment  (the 
last  not  to  overpass  ninety  days  from  the  date 
of  subscription),  and  the  banks  into  which  the 
subscription  would  be  paid.  Quite  a  number  of 
offers  were  presented,  but  all  varied  widely  as 
to  terms  and  conditions ;  none  of  them,  how- 
ever, going  beyond  a  rate  of  eighty-nine  per 
cent,  while  some  were  even  lower  than  seventy- 
five  per  cent.  Not  a  single  one  was  accepted. 
It  was  now  apparent  that  some  different  mode 
of  procedure  was  to  be  taken, — one,  too,  that 
should  be  found  more  in  unison  with  the 
changed  position  of  the  Treasury.  Justice  to 
the  equal  rights  of  the  public  creditors,  and  an 
honorable  regard  for  the  public  credit,  no  less 
than  a  sense  of  its  real  value  on  a  fair  estimate, 
would  not  permit  a  loan  to  assume  the  aspect 
and  character  of  a  scramble.  As  things  were 
now,  speculation  appeared  to  be  ruling  com- 
pletely the  price  of  the  stock,  which,  in  every 
town  and  village  throughout  the  country,  varied 
with  the  varying  difference  of  exchange ;  and 
this  latter,  adjusting  itself  to  the  scale  of  depre- 
ciation in  the  local  currency,  ranged  through  all 
degrees  up  to  twenty,  and  even  to  twenty-five, 


lySg  -  1S35.  1 1 5 

per  cent  Among  the  leading  Eastern  cities, 
the  greatest  depreciation  was  found  in  Wash- 
ington and  Baltmiore,  where  the  paper  of  their 
banks  was  rated  from  twenty  to  twenty-five 
per  cent  below  par,  as  compared  with  specie. 
In  Philadelphia  it  marked  from  seventeen  to 
eighteen  per  cent ;  in  New  York  and  Charles- 
ton from  seven  to  eight ;  and  in  the  interior 
of  the  country,  particularly  at  Pittsburg,  and 
in  such  portions  of  Western  Pennsylvania 
where  any  banks  existed,  the  depreciation  was 
twenty-five  per  cent. 

To  deal  properly  and  equitably  with  this 
unsettled  state  of  affairs,  the  Treasury  fixed 
upon  the  minimum  price  of  ninety-five  per 
cent  for  the  stock  :  any  offers  made  at  this 
rate  were  to  be  accepted  until  the  wants  of 
the  Treasury  should  be  sufficiently  supplied. 
The  price  of  the  stock  was  to  be  raised,  how- 
ever, at  any  time  when  the  local  funds  were 
seen  to  approximate  the  probable  amount  of 
local  demands  ;  and  whenever  this  accumu- 
lation should  be  fully  equal  to  such  demands, 
the  loan  was  to  be  closed.  In  this  way  the 
price  of  the  stock  was  made  independent  of 
the  up-and-down  prices  of   the    stock    markets 


Il6  AMERICAN  FINAAXES, 

through  the  country,  with  no  other  influence 
to  act  upon  it  save  the  actual  progress  to  the 
end  had  in  view  by  the  Treasury.  Thus,  for 
example,  in  the  District  of  Columbia,  sub- 
scriptions to  the  loan  in  money  were  at  95, 
962,  97,  98,  and  finally  at  par ;  in  Philadel- 
phia, New  York,  and  Boston,  they  were  all 
at  95  per  cent.  Subscriptions  in  Treasury 
notes,  however,  were  everywhere  made  at  the 
uniform  rate  of  ninety-five  per  cent. 

The  rapid  success  of  the  loan  demonstrated 
the  wisdom  of  the  policy  adopted.  The  Treas- 
ury had  secured  by  the  month  of  June,  181S, 
in  every  place,  except  New  York  and  Boston, 
enough  money  in  local  currencies  to  enable 
it  to  meet  the  payment  of  Treasury  notes  un- 
subscribed and  in  arrears.  To  holders  in 
New  York  and  Boston  of  notes  due  and 
unpaid  (no  current  money  having  been  ob- 
tained in  those  cities),  was  given  the  option 
either  of  accepting  drafts  on  Philadelphia  and 
Baltimore,  or  of  exchanging  the  old  notes 
(principal  and  interest)  for  new  ones  fund- 
able at  six  per  cent,  or  of  subscribing  them 
to  the  loan  of  twelve  millions  at  the  rate  of 
ninety -five    per    cent,    notwithstanding    that 


I78g-i835-  1 17 

the  price  of  the  stock  had  been  raised  at  the 
Treasury  on  June  18  from  ninety-five  to 
ninety-eight  per  cent.  This  proposition  was 
to  continue  open  until  Oct.  i,  the  date  on 
which  the  loan  itself  would  close. 

The  full  amount  of  subscriptions  to  this 
loan  of  twelve  millions  was  ^11,699,326.63. 
For  this  sura  were  issued  $12,288,147.56  in 
six -per -cent  stock;  representing,  as  will  be 
seen,  a  discount  of  $588,820.93  in  placing 
the  stock.  With  the  exception  of  some  tem- 
porary loans  from  banks,  negotiated  under  the 
same  authority,  at  par  at  the  rate  of  six  per 
cent  per  annum,  and  amounting  in  all  to  $1,- 
150,000,  no  other  loan  was  ever  made  after- 
wards in  connection  with  the  war  of   18 12. 

It  was  not  until  Jan.  i,  1817,  that  funds 
were  provided  for  paying  all  the  Treasury 
notes  in  New  York.  By  that  time  a  steady 
increase  of  revenue  had  rendered  the  active 
resources  of  the  Treasury  everywhere  avail- 
able except  in  the  Eastern  States.  Fettered 
by  their  charter  stipulations,  the  banks  in 
these  States  were  powerless  to  suspend  specie 
payments ;  and  thus  the  circulating  medium 
they  required  had  to  be  furnished   principally 


1 1 8  A  ME  RICA  N  FINANCES, 

by  Treasury  notes,  and  in  part  also  by  notes 
of  the  New-York  banks.  In  fact,  in  order  to 
avoid  an  issue  of  small  Treasury  notes,  a  tem- 
porary loan  was  obtained  Jan.  i,  1817,  from 
the  recently  chartered  Bank  of  the  United 
States,  for  the  purpose  of  discharging  in  Bos- 
ton claims  arising  from  dividends  and  reim- 
bursement of  the  public  debt.  And  not  until 
some  months  later  did  the  Government  find 
itself  in  a  condition  to  pay  in  local  currency 
all  its  obligations  in  the  Eastern  States, 

The  establishment  of  the  Bank  of  the 
United  States  completed  the  settlement  of 
the  finances,  in  that  it  created  a  currency 
which  was  alike  uniform  and  independent  of 
the  State  banks.  Since  now,  through  its 
agency,  the  people  were  supplied  with  a 
money  medium,  which  should  be  available  for 
every  public  and  private  use,  a  prohibitory 
enactment  was  passed  by  Congress  to  the 
effect,  that,  after  the  twentieth  day  of  Febru- 
ary, 1 817,  no  taxes,  duties,  or  moneys  accru- 
ing or  becoming  payable  to  the  Government, 
should  be  collected  or  received  in  any  other 
than  gold  and  silver  coin  (the  legal  currency 
of   the    United    States),  or  in  Treasury  notes, 


lySg-iSsS-  1 19 

or  in  notes  of  the  Bank  of  the  United  States. 
As  to  other  banks,  their  notes  were  receiv- 
able, if,  besides  being  payable,  they  were 
actually  paid  on  demand  in  the  legal  currency 
of  the  United  States. 

Through  the  disorder  in  the  currency  at  the 
close  of  the  war,  a  resort  to  Treasury  notes  had 
been  forced  upon  the  Government,  and  had 
been  constantly  followed  up,  even  when  the 
receipts  of  revenue  were  ample  without  them. 
Of  the  notes  authorized  under  the  Act  of  Dec. 
26,  1 8 14,  ^8,318,400  had  already  been  issued 
by  Sept.  I,  181 5,  at  which  latter  date  were 
begun  to  be  issued  those  which  had  been  voted 
in  the  Act  of  Feb.  24,  181 5.  The  interest- 
bearing  notes  of  this  issue  being  all  of  the 
denomination  of  ^100,  as  they  were  too  high 
for  a  current  medium  of  exchange,  and  as  they 
were  fundable  at  six  per  cent,  had  no  special 
restriction  laid  upon  their  number.  It  was 
different  with  the  "small  Treasury  notes:" 
these  were  limited  to  cases  of  peculiar  urgency, 
—  to  pay  off  the  army  preparatory  to  its  re- 
duction ;  to  pay  dividends  on  the  public  debt ; 
to  furnish  compensation  due  to  members  of 
Congress,  together  with  several  other  miscella- 


120  AMERICAN  FINANCES, 

neous  claims,  entitled,  apparently,  to  a  like  dis- 
tinction. Though  convenient  for  common  use, 
these  "  small  notes  "  were,  for  all  that,  converted 
into  stock  as  soon  as  issued,  being  fundable  at 
an  interest  of  seven  per  cent :  many  of  them, 
on  this  account,  were  disposed  of  by  the  Govern- 
ment at  a  premium.  ^3,392,994  represented  the 
entire  amount  of  "  small  Treasury  notes  "  issued 
under  the  Act  of  February,  18 15,  which  amount 
virtually  came  to  be  increased  by  re-issues  to 
^9,916,018.  Out  of  this  latter  sum,  there  were 
funded,  in  seven-per-cent  stock,  ^9,070,386 : 
the  residue  was  either  paid  in  for  taxes,  or  lost. 
As  regards  the  $100  interest-bearing  notes, 
^4,969,400  were  issued,  and  the  stock  taken  for 
this  amount  was  ^1,505,352.18:  the  remainder 
of  these  must  Hkewise,  for  the  most  part,  have 
found  their  way  back  to  the  Treasury  in  pay- 
ments of  some  sort. 

Congress  passed  an  Act,  March  3,  1817,  re- 
pealing so  much  of  all  Acts  then  in  force  as 
gave  authority  to  borrow  money,  or  to  issue 
or  re-issue  Treasury  notes.  And  it  was  further- 
more enacted  that  all  notes  which  at  that  date 
were,  or  which  should  thereafter  become,  from 
whatever   cause,    the   property  of   the    United 


1789-1835-  121 

States,  should  be  cancelled  and  destroyed.  This 
cancelling  and  final  disposition  of  the  Treasury- 
notes  was  nearly  completed  by  Jan.  i,  18 18. 
From  this  date,  or  say  from  the  last  quarter 
of  18 1 7,  the  public  debt  was  considerably  above 
par :  since  all  outstanding  notes  were  convert- 
ible into  stock,  they  were  funded  preferably  to 
being  paid  into  the  Treasury  for  duties  and 
taxes.  And  this  preference,  besides  placing 
local  funds  into  the  hands  of  the  Government, 
relieved  it  also  of  the  necessity  of  making  any 
appropriation  for  reimbursing  the  notes  issued 
under  the  Act  of  Feb.  24,  18 15,  which  notes,  it 
will  be  remembered,  having  been  originally 
designed  for  use  as  a  circulating  medium,  were 
fundable,  but  not  reimbursable. 

The  full  amount  of  Treasury  notes  of  all 
denominations  which  had  been  issued  since  the 
commencement  of  the  war,  was  ^36,680,794. 
The  amount  still  outstanding  on  Sept.  30,  18 18, 
was  $297,506;  but  all  interest  upon  these  had 
ceased  from  that  date. 

While  thus  actively  engaged  in  withdrawing 
the  Treasury  notes  from  circulation,  and  in  the 
process  of  funding  the  public  debt.  Congress 
had  also  turned   its    attention    to   a  thorough 


122  AMERICAN  FINANCES, 

revision  of  the  whole  system  of  internal  and 
external  taxation.  The  return  of  peace  had 
been  hailed  with  joy;  and  naturally,  the  people 
considered  that  an  immediate  release  from  the 
burdens  laid  on  them  by  the  war,  would  be  the 
first  token  of  relief.  But,  as  matters  then  stood, 
no  reduction  of  taxation  was  possible  before 
the  year  1816,  inasmuch  as  the  large  arrearages 
of  war-demands  had  laid  an  instant  and  absorb- 
ing claim  upon  the  entire  revenue  and  re- 
sources. Now,  however,  a  permanent  and 
uniform,  arrangement  of  the  finances  might 
easily  be  brought  about,  by  reason  of  the  large 
increase  of  revenue  ;  and  this  from  receipts  of 
customs  in  particular,  as,  at  the  close  of  the  war, 
the  supply  of  foreign  merchandise  to  be  found 
in  the  American  markets  was  comparatively 
very  limited. 

As  soon,  therefore,  as  a  reduction  of  expenses 
had  rendered  it  possible,  the  duties  were  re- 
pealed upon  articles  of  domestic  manufacture, 
upon  furniture,  and  upon  watches  ;  while  those 
on  licenses  to  retailers  in  wines,  liquors,  and 
foreign  merchandise  became  reduced,  and  the 
rates  of  postage  also.  The  duties  on  distilled 
spirits  were  abolished  altogether,  though   the 


lySg-iSjS-  123 

existing  duty  on  licenses  to  distillers  was 
doubled.  The  direct  tax  also  was  reduced  from 
six  millions  to  three  millions,  and  one  year  from 
date  it  was  not  to  continue  any  longer  in  force. 
These  several  reductions  would  aggregate,  as 
was  estimated,  eight  million  dollars,  with  the 
prospective  diminution  of  three  millions  more 
by  the  discontinuance  of  the  direct  tax,  already 
mentioned,  after  the  year  1816  ;  as  by  that  time 
there  was  in  contemplation  a  further  reduction 
of  expenditures. 

These  changes  in  the  revenue  laws  having 
been  instituted,  the  permanent  revenue  at  this 
time  constituted  of,  — 

1.  The  customs  (estimated) $17,075,000 

2.  The  direct  tax,  net  product   ....       2,700,000 
3    The  internal  duties  on  stamps   .     .     .  400,000 

"          "                 "      licenses  to  retail,  900,000 

"          "                 "      spirits     .     .     .  1,200,000 

"          "                 "      refined  sugar  .  1 50,000 
"         "                 "      carriages    and 

harness    .     .  175,000 

The  internal  duties  on  sales  at  auction,  400,000 

4.  Proceeds  from  sales  of  public  lands    .  1,000,000 


Total  estimated  revenue  .     .     .  $24,000,000 
There  were  other  sources  of  revenue  besides 


124  AMERICAN  FINANCES, 

these,  such  as,  the  duty  on  postage ;  the 
moneys  received  from  fines,  penalties,  and  for- 
feitures, together  with  similar  miscellaneous 
receipts.  From  all  sources  combined,  the 
gross  revenue  was  considered  to  be  amply 
sufficient  to  provide  for  all  payments  on  ac- 
count of  the  principal  and  interest  of  the  public 
debt,  and  for  the  support  of  the  Government  ; 
leaving,  besides,  a  surplus  which  would  be  quite 
equal  to  defraying  such  contingent  and  excep- 
tional expenses  as  Congress  might  see  fit  to 
authorize. 

The  newly  adopted  plan  of  finance  had 
settled  an  increase  of  forty-two  per  cent  on  the 
average  annual  product  of  the  tariff  duties  — 
the  years  before  the  war  serving  as  a  basis  of 
computation.  The  greater  part  of  this  increase 
was  made  a  charge  upon  the  ad  valoran  duties. 
The  actual  addition  made  to  these  latter  duties 
were  equal,  when  taken  as  a  whole,  to  one 
hundred  per  cent  increase  over  the  duties  that 
were  in  force  previous  to  the  war  :  still,  on  the 
other  hand,  as  the  increase  upon  woollen  and 
cotton  goods  had,  for  reasons  involved  in  the 
system,  been  fixed  at  i66|  percent,  and  124  per 
cent,    respectively,    it   was    consequently    esti- 


1789-1835-  125 

mated,  by  reason  of  this  prohibitory  feature 
introduced  into  the  new  tariff,  that  the  ad- 
ditional revenue  from  the  added  rates  of  the 
ad  valorem  duties  would  not  reach  higher  in  the 
aggregate  than  seventy-five  or  eighty  per  cent. 
Taken  in  general,  the  rates  of  the  specific 
duties  were  raised  in  such  proportion  that  their 
sum,  when  added  to  the  receipts  from  the  ad 
valorem  duties,  would  tally  on  the  average  with 
an  increase  of  about  forty-two  per  cent  upon 
the  annual  product  of  the  tariff  duties  before 
the  war,  which  was  about  ^12,000,000. 

While  now  the  rates  under  the  new  tariff 
were  put  considerably  higher  than  similar  rates 
before  the  war,  a  great  reduction  was  neverthe- 
less effected  upon  the  double  rates  levied  dur- 
mg  the  contest.  The  war  duties  amounted  to 
one  hundred  per  cent  increase  upon  all  duties  ; 
whilst  the  new  ad  valorem  duties,  except  those 
on  woollens,  cottons,  and  some  few  manufac- 
tures, ranged  from  only  tv/enty-five  per  cent  to 
seventy-five  per  cent ;  and  the  increase  was 
still  less  on  the  specific  duties.  The  tonnage 
duty  of  $1.50  was  also  reduced  much  below 
that  amount  ;  and  there  was  besides  a  tempo- 
rary  suspension    of   all    discriminating    duties. 


126  AMERICAN  FINANCES, 

upon  goods  imported  in  foreign  vessels,  in 
favor  of  several  of  the  European  Powers,  under 
the  influence  of  laws,  treaties,  etc. ;  and  later, 
these  duties  underwent  a  permanent  modifica- 
tion. 

A  principal  and  avowed  object  of  the  new 
tariff  was  to  afford  protection  to  our  own 
domestic  manufactures.  Their  growth  from 
the  peace  of  1783  down  to  the  year  1808  had 
been  slow,  and  therefore  the  more  sure ;  but 
under  the  restrictive  system,  as  during  the 
war  also,  they  had  attained  a  rapid  and  firm 
expansion.  They  naturally  fell  short  at  the 
outset  in  their  ability  to  supply  arms  and 
munitions  of  war,  clothing  material,  and  neces- 
sary articles  of  comfort  generally  ;  but,  as  the 
war  went  on,  all  these  were  gaining  a  steady 
increase.  Hence,  at  a  time  when  foreign  sup- 
plies were  either  prohibited,  or  not  to  be  ob- 
tained, the  public  demand  was  everywhere 
opening  an  inviting  career  to  the  investment 
of  private  capital,  and  to  remunerative  labor 
as  well.  Here,  however,  the  question  nat- 
urally arose,  how  it  would  fare  with  these  new 
industries  when  the  day  of  competition  should 
return.     For,  unless  this  question  were  satis- 


1789-1835-  127 

factorily  answered,  it  was  clear  that  capital 
would  shrink  from  embarking  in  them.  It 
was  well  known  that  the  peace  of  Europe 
was  ready  to  give  a  new  impetus  and  new 
openings  to  the  commerce  of  the  world ;  and 
therefore  it  was  made  a  matter  of  great  pub- 
lic concern  to  preserve  and  foster  the  grow- 
ing manufactures  of  the  country,  and  partic- 
ularly those  which  had  come  forth  under  the 
restrictive  system,  and  during  the  war,  and 
which  had  owed  their  existence  to  the  capital 
and  enterprise  and  skill  of  our  own  citizens. 

The  Government,  as  will  have  been  ob- 
served, had  been  accustomed  to  place  its  chief 
reliance  upon  the  duties  on  imports  in  order 
to  cover  its  expenses.  These  expenses  were 
now  calling  for  a  revenue  of  twenty-four  mil- 
lion dollars  :  of  this  sum,  seventeen  millions 
were  thrown  upon  the  customs,  leavmg  seven 
millions  to  come  from  internal  duties  and 
taxes,  and  from  the  sale  of  public  lands.  The 
new  plan  of  revenue  adopted  after  the  close 
of  the  war  of  1812  was  purposely  constructed 
to  do  away  with  the  traditional  usage  of  hav- 
ing the  income  of  the  country  fall  altogether 
or  principally  on    the  import  duties.  Congress 


128  AMERICAN  FINANCES, 

being  governed  in  this  action  by  the  experi- 
ence growing  out  of  the  late  war.  At  that 
critical  juncture,  it  was  found  necessary,  in 
the  midst,  too,  of  great  financial  embarrass- 
ment, to  construct  a  new  system  of  internal 
taxation,  and  to  seek  out  officials  who  might 
work  it  with  ability,  and  with  profit  to  the 
public  service.  As  a  consequence,  a  lack  of 
vigor  marked  the  early  movements  of  the  war  ; 
while  at  the  same  time,  the  people  had  to 
suffer  a  new,  sudden,  and  most  burdensome 
increase  in  their  money  contributions.  The 
lesson  of  this  experience  was  not  forgotten  : 
hence,  on  the  return  of  peace,  a  judicious  pro- 
portion of  the  existing  taxation  was  sought  to 
be  retained,  thereby  preserving  a  system  of 
revenue  under  which  the  internal  resources  of 
the  country  might  at  once  be  called  into  ac- 
tion, whenever  its  external  commerce  should 
prove  inadequate  to  the  exigencies  of  the 
times.  Though  adopted  in  1816,  this  plan  of 
finance  was  abandoned  in  1817  ;  not,  however, 
without  great  opposition,  even  though  its 
revocation  was  demanded  on  the  score  of  its 
being  actually  superfluous,  and  still  more  on 
the  ground  of  certain  pledges  previously  made 


i7Sg  -  1S33.  1 29 

by  Congress.  Even  before  the  close  of  181 7, 
it  had  become  manifest  that  the  revenue  de- 
rived from  imports  and  tonnage,  and  from  the 
sales  of  public  lands,  was  fully  adequate  by 
itself  to  meet  all  the  expenses  of  the  Govern- 
ment. There  was  then  the  circumstance  that 
these  internal  duties,  under  a  solemn  promise 
set  forth  in  the  Acts  of  1813-14,  were  to  con- 
tinue in  force  no  longer  than  one  year  after 
the  close  of  the  war.  This  assurance  it  was 
now  in  the  power  of  Congress  to  comply  with 
in  perfect  safety,  and  it  was  the  prevailing  view 
of  that  body  that  they  ought  to  do  so.  These 
reasons  were  accordingly  held  to  justify  a  gen- 
eral repeal  of  the  internal  duties,  to  take  effect 
after  1817. 

The  total  revenue  that  accrued  from  Jan. 
I,  1814,  to  Dec.  31,  1817,  on  account  of  these 
internal  revenues,  exclusive  of  the  direct  tax, 
amounted  to  more  than  seventeen  million 
dollars.  The  actual  receipts  for  the  same 
period  were  upwards  of  fifteen  million  dol- 
lars, upon  which  the  expense  of  collection  was 
five  and  seven-tenths  per  cent. 

The  re-organization  of  the  sinking-fund  had 
also    its    share    in    contributing    to    the    settle- 


I30  AMERICAN  FINANCES, 

ment  of  the  finances.  A  first  important  step 
on  the  return  of  peace,  was  to  relieve  this 
fund  of  the  excessive  charges  which  had  been 
thrown  upon  it  ;  and  among  these  the  char- 
ging upon  it  of  the  principal  and  interest  of 
the  Treasury  notes  had  proved  a  special  source 
of  inconvenience,  particularly  when  their  issue 
came  to  reach  the  annual  sum  of  eight  and 
ten  million  dollars.  Thus,  in  the  year  1814, 
the  multiplied  engagements  of  the  fund  ex- 
ceeded by  more  than  five  million  and  a  half 
dollars  the  actual  receipts  into  the  Treasury. 
That  it  should  at  once  be  disencumbered  of 
this  burden,  was  imperative.  The  method 
made  use  of,  as  we  have  seen,  was  in  the 
funding  of  these  notes  on  reasonable  terms, 
and  in  having  them  paid  directly  out  of  the 
current  revenue.  This  mode  of  procedure 
chanced  to  be  greatly  accelerated  by  the  enor- 
mous increase  of  revenue  for  18 16,  during 
which  year  not  less  than  twenty-four  million 
dollars  were  applied  to  the  reduction  of  the 
public  debt,  not  to  speak  of  means  to  its  fur- 
ther reduction  from  a  balance  of  upwards  of 
ten  millions  remaining  in  the  Treasury,  Jan.  i, 
18 1 7.     The  sinking-fund  became  thereby  virtu 


ally  relieved  of  the  payment  of  the  Treasury- 
note  debt,  as  also  of  such  temporary  bank 
loans  as  had  been  likewise  charged  upon  it. 
Thus,  within  the  space  of  two  years  from  the 
termination  of  the  war,  the  Treasury  notes 
had  either  been  returned  in  taxes,  or  sub- 
scribed to  the  loan,  or  funded. 

The  Act  of  March  3,  18 17,  marks  the  date 
of  the  re-establishment  of  the  sinking-fund. 
Congress  having  in  its  preceding  session 
adopted  the  plan  of  revenue  already  mentioned, 
and  determined  the  expenses  of  a  new  peace 
establishment.  In  every  Act  authorizing  the 
several  loans  which  swelled  the  public  debt  so 
enormously  during  the  war,  the  faith  of  the 
nation  had  been  uniformly  pledged  to  provide 
special  funds  to  pay  the  interest,  and  discharge 
the  principal,  of  such  loans.  That  pledge  was 
now  to  be  redeemed.  A  positive  and  fixed 
appropriation  of  ten  million  dollars  annually 
was  made  to  the  sinking-fund,  which  vv^as  to 
be  paid  over  out  of  the  several  proceeds  of 
duties  on  imported  merchandise,  of  the  tonnage 
and  internal  duties,  and  of  the  sales  of  the 
Western  lands  then  belonging,  or  which  might 
thereafter  belong,  to  the  United  States.     This 


132  AMERICAN  FINANCES, 

money  was  vested  in  commissioners ;  and  it 
was  made  the  duty  of  the  Secretary  of  the 
Treasury  to  pay  it  over  to  them  at  such  times 
in  each  year  as  should  enable  them  to  meet 
punctually  and  faithfully  any  of  their  engage- 
ments in  connection  with  the  public  debt. 

The  principal  of  the  public  debt  amounted, 
in  the  beginning  of  1817,  to  about  ;^i  10,000,000. 
To  this  amount  of  principal,  the  sum  above 
appropriated  bore  nearly  the  same  proportion 
as  the  sum,  assigned  in  1804,  to  the  fund,  bore 
to  the  principal  of  that  date.  Out  of  the  ten 
millions,  $6,150,000  were  needed  to  pay  inter- 
est, leaving  $3,850,000  for  reducing  the  princi- 
pal of  the  debt,  — an  amount  which  would  suffice 
on  a  compound  principal  to  pay  off  the  whole 
funded  debt  in  less  than  eighteen  years,  if  ap- 
plied strictly  and  uninterruptedly.  In  addition 
to  this  fixed  and  regular  appropriation,  thirteen 
million  dollars  were  set  apart  by  the  law,  out 
of  the  large  revenue  that  accrued  in  18 16,  to  be 
applied  during  the  year  181 7  to  the  redemption 
of  the  debt  :  four  millions  of  this  amount,  how- 
ever, were  to  be  considered  as  an  advance  on 
account  of  the  regular  appropriation  of  the 
sinking-fund  for  the  year  18 18.     Furthermore, 


1789-1835-  133 

any  surplus  in  the  Treasury  remaining  unap- 
propriated, after  each  session  of  Congress,  for 
the  service  of  the  current  year,  was  also  to  be 
expended  in  the  reduction  of  the  debt,  when- 
ever this  could  be  done  without  reducing  the 
balance  in  the  Treasury  at  the  end  of  the  year 
below  two  million  dollars. 

It  was  judged  unnecessary  to  include  in  the 
form  and  scope  proposed  for  the  sinking-fund, 
either  temporary  loans  or  Treasury  notes  ;  as 
these  had  nearly  been  paid  or  absorbed  by  the 
loans  effected  previous  to  Jan.  i,  1817.  Nor 
was  the  five-per-cent  stock  included  which  had 
been  issued  in  payment  of  the  subscription  by 
the  Government  to  the  Bank  of  the  United 
States.  This  transaction  amounted  in  fact  to 
no  more  than  an  exchange  for  the  same  amount 
of  the  bank  capital,  and  which  was  estimated 
to  produce  an  excess  of  dividends  over  the 
interest  payable  on  the  stock  which  would 
equal  the  reimbursement  of  the  principal  before 
the  term  of  the  expiration  of  the  charter,  not 
including  therein  the  bonus  of  ^1,500,000  given 
by  the  bank  for  the  charter  itself.  To  the 
same  category  was  consigned  the  stock  created 
by  the  compromise  with  the  Yazoo  claimants, 


134  AMERICAN  FINA.XCES, 

to  the  amount  of  ^4,000,000,  which,  however, 
bore  no  interest.  The  payment  of  this  stock 
was  charged  upon  the  sale  of  public  lands  in 
the  Mississippi  Territory. 

Finally,  we  should  observe  that  the  working 
of  the  sinking-fund  was  by  the  law  of  March 
3,  181 7,  greatly  simplified.  There  were  stand- 
ing, at  that  date,  on  the  books  of  the  Treasury, 
to  the  credit  of  the  commissioners,  thirty-four 
millions  of  stock,  of  fourteen  different  descrip- 
tions, while  the  interest  payable  thereon  was 
at  seven  different  rates.  This  interest  was 
supposed  regularly  to  accrue  and  to  be  paid, 
when  in  fact  its  sole  effect  was  to  add  to  the 
labors  of  the  persons  keeping  the  Government 
accounts.  It  was  now  provided  by  the  new 
law,  that  all  certificates  of  public  debt,  when 
redeemed,  should  be  destroyed,  and  that  no 
further  payment  be  made  upon  them.  Either 
mode,  it  is  true,  had  the  same  practical  effect 
as  to  the  diminution  of  the  national  debt :  still, 
though  the  trouble  saved  in  making  up  the 
accounts  might  be  of  little  moment,  it  was 
thought  not  unworthy  the  wisdom  of  the  Legis- 
lature to  simplify  their  })ublic  statements,  so  as 
to  have  them  easily  and  generally  understood. 


I78g-i835-  135 

and  to  see  that  accounts  plain  in  themselves 
were  not  obscured  by  the  introduction  of  an 
useless  fiction. 

The  application  of  all  the  large  surplus  rev- 
enue to  the  reduction  of  the  public  debt,  as 
provided  for  in  the  Act  of  March,  1817,  was 
rendered  possible  by  a  special  provision  in  the 
charter  recently  granted  to  the  Second  Bank  of 
the  United  States.  Every  species  of  funded 
debt  was  therein  made  free  to  be  subscribed 
to  the  capital  of  the  bank ;  and  these  subscrip- 
tions were  made  payable  one-fourth  in  gold  and 
silver,  and  three-fourths  in  funded  debt.  The 
public  stocks  thus  subscribed  became  redeem- 
able according  to  the  Government's  pleasure, 
and  also  at  the  rates  subscribed  ;  that  is  to  say, 
the  six-per-cent  stock  at  par ;  the  three-per- 
cent stock  at  65  per  cent  of  the  par  value ;  the 
seven-per-cent  stock  at  \o6^-^^  per  cent.  Dur- 
ing the  year  181 7  there  was  paid,  on  account  of 
the  interest  and  principal  of  the  debt,  the  sum 
of  ^25,423,036.12,  and  ^21,296,306.04  in  1818. 
But  from  the  year  18 19  to  1823  inclusive,  the 
entire  sum  applied  to  reducing  the  debt  fell 
short  by  ^1 1,92 1,604.70  of  the  amount  it  should 
have  reached,  had   the  full   ten   millions    been 


136  AMERICAN  FINANCES, 

paid  each  year  in  principal  and  interest. 
While,  however,  during  these  five  years,  it 
sometimes  happened  that  the  amount  of  the 
debt,  redeemable  under  the  terms  relating  to 
it,  would  not  have  allowed,  in  the  course  of  a 
year,  of  the  payment  of  so  large  a  sum  as  ten 
millions,  even  if  the  surplus  funds  in  the  Treas- 
ury had  been  equal  to  it ;  nevertheless,  for  the 
sudden  change  in  a  prospect  so  flattering,  in 
the  commencement  of  1818,  of  a  speedy  extin- 
guishment of  the  debt,  the  state  of  the  public 
revenues  was  responsible.  The  annual  interest 
was  ever  scrupulously  paid,  but  the  receipts  into 
the  Treasury  were  found  insufficient  to  make 
up  the  entire  appropriation  of  ten  millions. 

In  1 8 19,  for  the  first  time  since  the  war,  the 
expenditures  of  the  year  had  to  be  defrayed 
entirely  out  of  the  established  annual  revenue. 
The  internal  duties,  it  v/ill  be  remembered, 
estimated  at  $2,500,000  per  annum,  were  re- 
pealed after  Dec.  31,  181 7;  and  in  the  same 
session  of  Congress,  that  the  repeal  was  made, 
the  expenditures  of  the  Government  were  in- 
creased by  three  million  dollars.  The  apparent 
deficit  produced  by  these  Acts,  for  the  service 
of  the  year  181 8,  was  supplied  by  receipts  from 


arrearages  of  the  direct  tax  and  internal  duties, 
and  by  a  balance  in  the  Treasury  on  Jan.  i, 
1818,  of  more  than  six  million  dollars.  But,  as 
these  temporary  sources  of  supply  were  being 
nearly  exhausted,  the  expenditures  of  18 19, 
therefore,  were  of  necessity  thrown  on  its  own 
actual  current  receipts  ;  and,  in  fact,  a  deficit 
which  the  great  falling  off  in  the  receipts  from 
customs  and  other  sources,  was  already  threat- 
ening, was  only  averted  by  a  timely  increase, 
toward  the  close  of  the  year,  in  the  proceeds 
from  the  sale  of  public  lands,  which  exceeded 
the  estimated  return  by  nearly  two  million 
dollars. 

But  to  cover  the  payments  from  the  Treas- 
ury for  the  service  of  the  year  1820,  a  loan  of 
three  million  dollars  was  deemed  requisite. 
Under  the  discretionary  joower  conferred  by  the 
Act  of  May  15  of  that  year,  which  authorized 
this  loan,  two  millions  of  it  were  obtained  at  a 
premium  of  two  per  cent  upon  stock  bearing 
six-per-cent  interest,  redeemable  at  the  pleasure 
of  the  Government,  and  one  million  at  par, 
upon  fivc-pcr-cent  stock,  which  was  not  redeem- 
able till  1832. 

In  1 82 1    it  was  found  necessary,  as  the  de- 


138  AMERICAN  FINANCES, 

cline  in  the  receipts  from  customs  still  con- 
tinued, to  negotiate  another  loan,  and  for  five 
million  dollars.  This  sum  was  needed  for  the 
twofold  purpose  of  settling  outstanding  claims 
upon  the  Treasury  arising  from  appropriations 
made  in  the  preceding  year,  but  still  unsat- 
isfied and  unexecuted,  and  also  of  completing 
the  ways  and  means  for  the  year  1821.  This 
money,  in  accordance  with  the  terms  of  the  Act 
of  March  3,  was  borrowed  upon  stock  bearing 
five-per-cent  interest,  and  redeemable  after 
Jan.  I,  1835.  As  this  loan  had  been  obtained 
at  a  premium  ranging  from  ^^-^  per  cent  to 
8  per  cent,  —  averaging  ^y^-^  per  cent,  — stock 
was  issued  to  the  amount  only  of  ^4,735,296.30, 
which,  with  the  premium  received,  made  up 
the  five  million  dollars.  But,  notwithstanding 
the  aid  of  this  loan,  charges  remained  upon  the 
revenue  of  1821,  which  exceeded  by  nearly 
fifteen  hundred  thousand  dollars  the  available 
balance  in  the  Treasury  on  the  ist  of  January, 
1822. 

Several  causes  concurred  in  bringing  about 
the  great  falling  off  in  the  revenue  from  imports 
and  tonnage  in  18 19  and  1820.  The  high 
prices  of  all  exportable  articles  in  the  first  years 


1789-1835-  139 

of  the  peace  down  to  the  end  of  1818,  served  to 
introduce  extravagance  of  every  kind,  particu- 
larly in  the  consumption  of  foreign  merchan- 
dise. To  this  period  of  excessive  and  ruinous 
importations,  succeeded  a  term  of  great  depres- 
sion, which  left  the  foreign  commerce  of  the 
country  in  a  very  languishing  condition.  The 
sudden  decline  which  now  took  place  in  all 
exportable  articles,  not  only  checked  the  pur- 
chase of  foreign  commodities,  but  made  it  also, 
to  a  great  extent,  impossible  to  fulfil  engage- 
ments previously  entered  into.  Merchants,  of 
course,  ceased  importing  when  there  was  no 
demand  ;  but,  more  than  that,  they  were  even 
compelled  to  reship  their  foreign  merchandise, 
in  order,  in  this  way,  to  avoid  the  payment  of 
the  revenue  bonds,  given  as  security  for  the 
duties.  Hence  the  issue  and  payment  of  de- 
bentures took  place  to  an  extent  altogether 
unusual  and  unlooked  for.  Even  such  bonds  as 
became  due  were  not  paid  promptly,  owing  to 
the  difficulty  in  obtaining  money.  The  con- 
traction of  the  currency  added  its  share  also  to 
the  general  depression.  The  banks  which, 
during  the  suspension  of  specie  payments,  had 
been  excessive  in  their  note  issue,  were  recently 


140  AMERICAN  FINANCES, 

forced,  by  the  large  exportations  of  the  precious 
metals  in  1818,  to  contract  their  discounts,  so 
as  to  withdraw  a  large  portion  of  their  notes 
from  circulation.  The  effect  of  this  may  be 
best  observed  in  the  fact  that  the  currency 
which  stood  at  about  ^70,000,000  in  181 3,  and 
was  raised  to  ;^i  10,000,000  in  18 15  and  18 16, 
found  its  volume  reduced  by  the  close  of  18 19 
to  1^45,000,000,  —  a  reduction  of  59  per  cent 
within  three  years.  Such  an  ordeal  bore  with 
too  heavy  a  weight  on  the  community  not  to 
impair  the  ability  of  individuals  to  discharge 
their  liabilities  to  the  Government.  As  a  con- 
sequence, more  than  three  million  dollars'  worth 
of  outstanding  revenue  bonds  were  in  suit  about 
this  time,  of  which  a  large  portion  never  was 
collected,  by  reason  of  the  insolvency  of  the 
debtors. 

The  tariff  of  18 16,  framed  with  a  view  to  a 
sufficient  encouragement  of  domestic  manufac- 
tures, likewise  occasioned  a  loss  to  the  revenue, 
as  indeed  it  was  expected  to  do.  In  this  re- 
spect its  effect  was  now  being  fully  felt.  From 
the  year  18 18  to  the  year  1820,  for  example, 
there  was  a  fall  in  the  importations  of  cottons 
and  woollens    from  ^24,804,188  to  ^8,980,075, 


I78g-i835-  1 41 

being  a  loss  from  these  two  fabrics  of  $15,824,- 
113  in  two  years.  Within  the  same  period, 
the  duties  from  spirits  fell  from  $2,646,186  to 
$1,728,665,  a  difference  of  nearly  a  million 
dollars.  The  tariff  had  been  enacted  during 
the  existence  of  the  excise  on  home-distilled 
spirits  ;  and  for  the  protection  of  the  domestic 
article,  an  additional  duty  was  imposed.  The 
excise  was  repealed,  but  the  duty  on  foreign 
spirits  was  continued ;  so  that  the  duty  on 
these  last  exceeded  the  entire  value  of  the 
domestic  product.  This  circumstance  tended 
to  decrease  the  consumption  of  foreign  spirits, 
and  with  it,  of  course,  the  amount  of  revenue 
also. 

The  shrinkage,  which  occurred  in  18 19  in 
the  returns  from  imports  and  tonnage,  showed 
a  progressive  decrease  throughout  1820,  and 
reached  its  lowest  point  of  depression  in  the 
first  quarter  of  1821.  In  this  latter  year  the 
customs  yielded  but  $13,004,447.15.  It  was 
plain  that  the  public  interests  now  demanded 
either  that  the  revenue  be  augmented,  or  ex» 
penditures  diminished.  As  to  the  former  alter- 
native, it  was  conceived  that  the  tariff  might 
be  easily  made  more  productive,  were  its  rates 


142  AMERICAN  FINANCES, 

reduced ;  but  any  such  proposed  reduction  met, 
of  course,  with  a  violent  opposition  from  the 
protected  interests.  On  the  other  hand,  a  sys- 
tem of  internal  duties  was  claimed  to  be  gen- 
erally odious  and  oppressive  in  its  collection, 
and  was  regarded  also  as  falling  principally  on 
the  agricultural  portion  of  the  country,  the 
great  moneyed  capitalists  escaping  its  opera- 
tion. Since,  then,  nothing  but  a  retrenchment 
of  the  public  expenditure  was  able  to  save  the 
people  from  internal  taxation,  Congress  came 
at  last  to  decide  upon  this  latter  course. 
Accordingly,  we  find  that  the  expenditures  of 
the  Government — those  on  account  of  the 
public  debt  excluded  —  were  now  reduced  from 
the  sum  of  $13,134,530.57  in  1820  (itself  a 
great  reduction  on  previous  years)  to  $10,723,- 
479.07  in  1821,  and  to  $9,827,643.51  in  1822. 
In  this  way  the  expenses  of  the  Government 
were  reduced,  and  made  equal  to  its  income. 
During  this  year  it  was  that  a  revival  took 
place  in  the  foreign  commerce  of  the  country, 
Vv^hich,  from  its  favorable  action  upon  the  rev- 
enue from  imports  and  tonnage,  relieved  the 
Treasury  of  all  its  embarrassment,  yielding 
besides   an    income   sufficient    for  all    expendi- 


1789-1835-  143 

tures,  and  equal  also  to  the  full  sinking-fund 
requisition  of  $10,000,000.  It  was  seriously 
thought  at  one  time  to  reduce  this  amount  to 
$8,000,000.  Happily,  not  only  was  this  con- 
templated reduction  not  necessary,  but,  through 
the  increasing  efficiency  of  the  national  re- 
sources, the  previous  deficiency  in  the  appli- 
cation of  the  entire  fund  was  more  than  made 
good  by  the  subsequent  excess  of  annual  pay- 
ments on  the  principal  of  the  debt,  made  from 
the  beginning  of  1826  to  1828. 

On  the  first  days  of  the  several  years,  1825, 
1826,  1827,  and  1828,  the  great  war  debt  be- 
came payable  at  the  will  of  the  Government. 
The  amount  of  it  yet  unredeemed  was  $63,786,- 
137.74.  -^s  this  sum  largely  exceeded  the 
highest  possible  capacity  of  the  sinking-fund, 
during  those  four  years,  a  series  of  efforts  was 
begun  as  early  as  1822  to  refund  a  portion  of 
this  debt,  with  a  view  to  its  more  equal  dis- 
tribution over  a  greater  number  of  the  years 
succeeding.  For  such  a  plan,  the  time  seemed 
very  propitious ;  as  the  current  value  of  the 
five-per-cent  stock  issued  recently  by  the  Gov- 
ernment was  higher  than  that  of  the  seven-per- 
cent stock  redeemable  in   1825.     Accordingly, 


144  AMERICAN  FINANCES, 

offers  were  made,  under  an  Act  of  April  20, 
1822,  to  exchange  $26,000,000  of  the  stocks 
redeemable  in  1825,  1826,  1827,  and  1828,  into 
a  five-per-cent  stock  redeemable  in  this  wise  ; 
viz.,  (i)  as  to  the  six-per-cent  stock  exchanged, 
one-third  on  Jan.  i,  1831,  and  one-third  on  the 
same  date  in  the  years  1832  and  1833  ;  and  (2) 
as  to  the  seven-per-cent  stock  exchanged,  on 
Jan.  I,  1834.  Not  more,  however,  than  $56,- 
704.77  were  exchanged.  And  the  failure  of 
the  measure  was  attributed  to  a  sudden  rise, 
during  the  year,  in  the  rate  of  interest,  caused 
by  a  demand  for  capital  to  be  used  in  commer- 
cial enterprises.  As  this  state  of  affairs  con- 
tinued during  the  year  following,  it  prevented 
any  similar  attempt  being  then  made. 

The  balance  in  the  Treasury  on  the  ist  of 
January,  1824,  reached  the  sum  of  $9,463,922.- 
81.  According  to  the  existing  terms  of  the 
public  debt,  no  portion  of  this  balance,  nor  of 
any  surplus  accruing  during  the  year,  coald 
be  applied  to  it  before  the  ist  of  January, 
1825.  The  principal  of  a  large  amount  of  the 
debt,  and  that  part,  too,  of  it  bearing  the 
highest  rate  of  interest,  becoming  payable  at 
this  latter  date,  it  would  have  been  inexpedi- 


I78g-i835-  1 45 

ent  to  apply  the  resources  at  the  disposal  of 
the  Government  meanwhile  to  any  other  ob- 
ject than  the  payment  of  this  debt.  In  order, 
therefore,  to  obviate  the  general  inconvenience 
involved  in  the  withdrawal  of  so  large  a  sum 
from  circulation,  only  to  lie  idle  in  the  vaults 
of  the  banks,  authority  was  given  by  an  Act 
of  Jan.  22,  1824,  to  purchase  at  a  premium 
the  outstanding  seven-per-cent  stock,  which 
amounted  to  ^8,610,000.  These  purchases,  if 
made  prior  to  the  ist  of  April,  were  to  be  at 
the  rate  of  two  dollars  for  every  ^100,  in  addi- 
tion to  the  interest  due  at  that  date  ;  if  made 
between  the  ist  of  April  and  the  ist  of  July, 
they  were  at  the  rate  of  seventy-five  cents  on 
every  ^100,  and  interest  to  the  latter  date; 
and  if  between  the  ist  of  July  and  the  ist  of 
October,  they  were  at  par  with  interest  to 
Oct.  I.  After  the  ist  of  October  the  pur- 
chases were  at  par,  and  accrued  interest  to 
the  date  of  purchase.  It  being  very  well 
known  in  advance  that  the  Government  would 
be  in  possession  of  ample  means  to  redeem 
the  stock  at  its  maturity,  this  arrangement 
met  with  sufficient  acceptance  to  accomplish 
its  purpose. 


146  AMERICAN  FINANCES, 

Other  measures  besides  the  above  men- 
tioned were  passed  in  reference  to  the  public 
debt.  Under  the  Acts  of  the  24th  and  the 
26th  of  May,  1S24,  there  were  negotiated  two 
loans  of  ^5,000,000  each  with  the  United 
States  Bank  at  four  and  a  half  per  cent,  and 
redeemable  in  1832  and  1834  respectively. 
One  of  them  had  for  its  object  to  discharge 
the  awards  stipulated  under  the  Florida  treaty 
of  the  22d  of  February,  1819;  while  the  other 
was  designed  to  pay  such  amount  of  the  six- 
per-cent  stock  of  1812  as  might  still  remain 
unredeemed,  after  all  the  means  at  the  dis- 
posal of  the  commissioners  of  the  sinking- 
fund  during  the  year  1825  had  been  put  into 
requisition.  As  to  these  two  loans,  it  is  proper 
here  to  observe,  that  besides  the  proposal  of 
th-e  United-States  Bank,  which  was  the  one  ac- 
cepted, various  other  offers  had  been  received 
for  somewhat  more  than  one-half  of  one  of  the 
loans,  and  at  rates  varying  between  par  and 
four  and  a  half  per-cent  premium,  thus  form- 
ing an  average  premium  of  .97^  on  the  whole 
amount  offered.  Notwithstanding,  the  propo- 
sal of  the  bank  for  the  entire  amount  of  both 
loans  at  par  was   considered   as   more   advan- 


tageous  to  the  Government,  especially  as  it 
was  proprietor  of  one-fifth  of  its  capital.  Still 
another  Act,  passed  on  the  26th  of  May,  1824, 
authorized  an  exchange  of  ^15,000,000  of  the 
six-per-cents  of  1813  into  four-and-a-half-per- 
cent stock,  redeemable,  one-half  in  1833,  and 
the  remainder  in  1834.  Not  more,  however, 
than  ^3,308,307.45  were  exchanged. 

On  the  1st  of  January,  1826,  there  were 
redeemable  of  the  six-per-cent  stock  of  1813, 
$19,000,000.  The  ordinary  revenues  of  the 
year  were  not  adequate  to  the  redemption  of 
more  than  ^7,000,000  of  this  sum,  thus  leaving 
an  excess  of  ;^  12,000,000  unprovided  for.  In 
order,  therefore,  to  constitute  a  fund  which,  in 
conjunction  with  the  annual  surplus  means  of 
the  Treasury,  would  pay  off  the  nineteen  mil- 
lions redeemable  in  1826,  an  Act  of  March  3, 
1825,  authorized  an  exchange  of  new  stock 
bearing  four  and  a  half  per  cent  interest,  and 
amounting  to  $12,000,000,  for  a  like  amount 
of  the  six-per-cent  stock  issued  in  1813.  The 
redemption  of  this  stock  Avas  thrown  in  equal 
portions  upon  the  years  1829  and  1830, — no 
part  of  the  public  debt  being  payable  in  these 
two   years    except    the    seven    millions   due    to 


148  AMERICAN  FINANCES, 

the  bank,  and  the  three-per-cents  ;  but  neither 
of  these  two  last  was  it  advisable  to  redeem, 
so  long  as  stocks  were  outstanding  bearing 
a  higher  rate  of  interest.  In  the  event  of 
failure  to  accomplish  the  object  of  the  Act  by 
the  proposed  means  of  an  exchange  of  stock, 
a  loan  was  authorized,  as  an  alternative,  which, 
however,  was  not  to  differ  from  the  preceding, 
either  as  to  amount,  or  rate  of  interest,  or  the 
time  of  its  redemption.  A  loan  was  thought 
the  more  likely  to  succeed,  even  though  fail- 
ure should  come  to  the  exchange  for  the  rea- 
son that  a  loan  would  invite  competition 
among  all  the  moneyed  capitalists,  and  also 
from  the  Bank  of  the  United  States  ;  whereas, 
an  exchange  of  stocks  might  easily  have  the 
effect  of  confining  the  demand  for  the  new 
stock  to  the  holders  of  the  old,  who,  besides 
constituting  but  a  small  portion  of  the  capital- 
ists, were  the  very  persons  interested  in  pre- 
venting the  accomplishment  of  the  exchange. 
The  exchange,  at  all  events,  was  first  at- 
tempted, and  was  effective  to  the  amount  of 
only  $1,585,138.88.  Loan  proposals  were  next 
issued  for  what  remained  of  the  required  sum, 
but    no    offers    were    received.     The    Govern- 


1789-1835-  149 

ment,  it  seems,  had  now  to  contend  with  a 
rival  suitor  for  the  capital  of  the  country  ;  for, 
when  lenders  came  to  consider  the  short 
periods  of  redemption  held  out  by  the  Act, 
they  found  that  the  rate  of  interest  was  too 
much  below  that  which  capital  might  gain  if 
it  were  invested  in  commercial  and  manufac- 
turing undertakings. 

This  attempt  was  the  last  that  was  made  to 
alter  the  terms  of  the  public  debt,  so  as  to 
change  the  period  of  its  redeemability.  The 
time  was  no  longer  propitious.  Both  at  home 
and  abroad,  serious  embarrassments  had  arisen 
in  the  money-market,  and  these  were  more 
likely  to  increase  than  diminish.  Neither  by 
loan,  nor  by  exchange,  was  it  possible  to  effect 
now  a  saving  of  more  than  one-half  of  one  per 
cent ;  and  this  could  prove,  under  the  circum- 
stances, of  but  little  advantage  to  the  Govern- 
ment. From  this  time  forward  the  surplus 
means  of  the  Treasury,  as  it  accumulated,  was 
applied  quarterly  in  partial  payments  towards 
the  redemption  of  the  six-per-cent  stocks ;  and 
in  order  to  determine  the  persons  whose  stock 
was  to  be  paid  at  the  end  of  each  ensuing 
quarter,  lots  were  drawn  at  the  Treasury      In 


I50  AMERICAN  FINANCES, 

pursuance  of  this  method,  the  debt  was  the 
more  speedily  reimbursed,  the  expenditure  on 
account  of  interest  became  lessened,  and  pay- 
ments were  more  equally  distributed  over  differ- 
ent years ;  while  it  also  suited  the  convenience 
of  the  Government,  and  effectually  guarded 
against  all  possible  accumulation  of  money  in 
the  Treasury. 

The  term  of  the  final  extinguishment  of  the 
public  debt  was  now  rapidly  approaching.  Al- 
though the  credit  of  this  notable  result  is  due 
primarily  to  a  faithful  adherence  to  the  provis- 
ions of  the  Sinking-Fund  Act  of  March  3,  18 17, 
yet  it  will  not  be  without  interest  to  know  that 
the  revenue  that  sustained  its  successful  action, 
was  drawn  almost  entirely  from  the  foreign 
commerce  of  the  country.  Up  to  the  present 
time,  many  changes  had  been  made  in  the 
Tariff  Act  of  April  27,  1816;  and  of  these  the 
most  important  was  the  one  inaugurated  by 
the  Act  of  May  22,  1824,  and  which  had  for  its 
object  to  perfect  what  was  known  as  the 
"American  System"  for  the  protection  of 
domestic  manufactures.  An  increase  of  duties 
was  effected  by  this  tariff  equal  to  about  7^^^ 
per  cent  upon  the   entire  amount  of  importa- 


J78g  - 1835.  1 5  I 

tions.  But  notwithstanding  this  large  augmen- 
tation of  duties  on  imports,  many  of  which 
were  prohibitory  in  their  effect,  the  general 
aggregate  of  the  foreign  trade  itself  was  not 
diminished,  and  the  revenue  therefrom  contin- 
ued even  to  increase.  Nor  did  this  increase 
suffer  any  interruption  from  several  subsequent 
Acts  (all  passed  prior  to  1835),  which  gradually 
reduced,  and  finally  abolished,  the  duties  upon 
sundry  articles,  including  among  them  such  im- 
portant commodities  as  coffee,  cocoa,  molasses, 
salt,  and  tea. 

Under  such  favorable  circumstances,  larger 
and  ever  larger  amounts  were  able  to  be  applied 
to  the  redemption  of  the  public  debt.  The 
disbursements  exceeded  sixteen  millions  in 
183 1,  and  eighteen  millions  in  1832.  While 
these  and  previous  important  payments  on 
account  of  the  public  debt,  and  such  others  as 
had  to  meet  the  current  expenses  of  the  Gov- 
ernment, were  being  made,  the  large  additional 
sum  of  fifteen  millions,  or  perhaps  twenty  mil- 
lions besides,  went  to  objects  of  internal 
improvements,  such  as  roads,  canals,  fortifica- 
tions and  arsenals,  docks,  i)ublic  buildings,  etc. 

The    public    creditors,    in    tlicir    unbounded 


1 5 2       AMERICAN  FINANCES,  1789  - 1835. 

reliance  upon  the  faith  and  resources  of  the 
nation,  saw  with  regret  the  approach  of  the 
time  when  their  claims  would  be  paid,  and  they 
at  least  would  have  rejoiced  in  its  postpone- 
ment. But,  with  the  people  at  large,  the 
extinction  of  the  debt  had  become  a  favorite 
and  ruling  object ;  and,  in  obedience  to  their 
wide-spread  interest  in  the  matter.  Congress 
hastened  the  event  by  every  means  in  its 
power,  especially  by  a  prudent  economy  in  the 
public  expenditures.  Before  the  close  of  the 
year  1834,  ample  funds  had  been  deposited  with 
the  Bank  of  the  United  States,  as  Commissioner 
of  loans,  to  discharge  all  the  public  funded  debt 
then  outstanding. 

In  1835,  the  President,  in  his  annual  message 
to  Congress,  was  able  to  announce  that  "all 
the  remains  of  the  public  debt  have  been  re- 
deemed, or  money  has  been  placed  in  deposit 
for  this  purpose  whenever  the  creditors  choose 
to  receive  it.  All  the  other  pecuniary  engage- 
ments of  the  Government  have  been  honorably 
and  promptly  fulfilled  ;  and  there  will  be  a  bal- 
ance in  the  Treasury,  at  the  close  of  the  present 
year,  of  about  nineteen  millions  of  dollars." 


INDEX. 


Accounts,  settlement  of,  be- 
tween the  States  and  United 
States,  23. 

Adams,  John,  minister  to  the 
Hague,  3. 

Albany,  city  of,  84. 

Algiers,  treaty  with,  31. 

American  system,  150. 

Amsterdam,  45  ;  exchange  on, 
66. 

Antwerp,  45. 

Appropriations,  permanent, 
See  Sinking-Fund. 

Arrears  of  interest.  See  Inter- 
est. 

Auction,  duty  on  sales  by,  32, 
103,  123. 

Balances,  State,  nature  of,  25 ; 
settlement  of,  26;  not  paid, 

27,  73- 

Balance  in  Treasury,  133,  137, 
144,  152;  accumulation  of, 
in  Treasury,  145,  150. 

Baltimore,  city  of,  84,  115,  116. 

Bank  of  the  United  States, 
chartered,  29,  118;  notes 
receivable  for  taxes,  29,  118; 
Government  subscription  to 


stock,  29,  133 ;  capital,  29, 
dividends,  29,  t^j,  133; 
bonus  paid  by,  133;  cur- 
rency of,  118;  subscriptions 
paid  in  public  stocks,  135; 
sale  of  stock,  48  ;  loans  from, 
to  the  Government,  29,  46, 
118,  146. 

Banks,  State,  loans  by,  to  the 
Government,  78,  84,  117; 
depositories  of  public  loans, 
78,  90 ;  capital  of,  92 ;  pur- 
chase of  Treasury  notes  by, 
81;  circulation,  99,  106,  114, 
117,  118,  139,  140;  notes 
taxed,  89;  suspension  of 
sj^ecie  payments  by,  99,  106, 
'J7>  I39>  depreciation  of 
circulation,  99,  114;  notes 
of,  receivable  for  taxes,  119; 
of  New-England  States,  99, 
117.     See  Currency. 

Barbary  States,  war  with,  73. 

Berlin  decree,  74. 

Bills  of  credit,  19,  24. 

Bonds,  revenue.  See  Revenue. 

Boston,  city  of,  84,  98,  99,  105, 
116,  118. 

British  debts,  71. 


IS3 


154 


INDEX. 


Carriages,  tax  on,  32,  49,  89, 
103,  123. 

Charleston,  city  of,  84,  115. 

Columbia,  District  of,  99,  102, 
116. 

Commerce,  protection  of,  50, 
74 ;  effect  of  embargo  on, 
76;  state  of,  in  1812,  76;  in 
1813,  87;  in  1816,  127;  in 
1820,  139;  in  1822,  142. 

Commissioners  of  sinking- 
fund,  39,  54,  55 ;  powers  and 
duties  of,  40,  59, 60,  62,  132. 

Commissions  allowed  on  pub- 
lic loans.     See  Loans. 

Conditional  subscriptions  to 
public  loans.     See  Loans. 

Confederation,  the  Govern- 
ment of  the,  financial  embar- 
rassments of,  I,  6,  12  ;  reve- 
nue system  under,  i,  20,  23, 

30- 

Congress,  resolution  of,  in  re- 
gard to  Revolutionary  debt, 
12. 

Congressional  pledges,  12,  52, 
no,  128,  131.     See  Debt. 

Connecticut,  26. 

Constitution  of  the  United 
States,  its  origin,  i ;  conven- 
tion for  framing,  2  ;  its  rati- 
fication, 2 ;  provision  of,  in 
regard  to  debts,  2 ;  effect  of, 
on  public  credit,  11. 

Contraction  of  currency.  See 
Currency. 

Cotton  goods,  tariff  on,  49, 
124;  effect  of  tariff  on,  140. 

Credit,  public,  influence  of  new 


Constitution  on,  2,  12;  state 
of,  in  1789,  12;  in  1812,77; 
in  1814,  88,  loi,  102  ;  in 
181 5,  109,  III;  after  the 
war  of  18 1 2,  114. 

Credit  given  on  collection  of 
revenue.     See  Revenue. 

Currency,  contraction  of,  81, 
140;  state  of  the,  in  1814, 
92,  106;  in  1815,  114;  after 
the  war  of  1812,  118,  119; 
disordered  state  of,  99,  106, 
117,  118,  119;  depreciation 
of  the,  114.  See  Suspension 
of  Specie  Payments. 

Current  expenses.  See  Ex- 
penses. 

Customs.      See  Tariff  Duties. 

Debt,  public,  domestic  debt, 
resolution  of  Congress  in 
regard  to,  12,  15;  amount 
of,  3,  1 1  ;  nature  of,  1 1 ;  how 
funded,  14,  16,  70  ;  reduction 
of  interest  on,  13,  17,  70; 
advantages  to  creditors  of 
funding,  16,  18;  beneficial 
results  of  funding,  28;  terms 
changed,  13,  16,  64,  70;  sub- 
scriptions to,  18;  amount 
funded,  19;  amount  of  in- 
terest on,  30,  70;  conversion 
of,  9,  45,  48,  64 ;  purchases 
of,  30.  34.  36.  58,  62,  70, 
145;  laws  regulating  pur- 
chases, 62 ;  payment  of,  t,^, 

34.  35.  37.  41.  49.  50.  58.  67, 
68,  135,  149,  151;  amount 
of,  in  1789,69;  in  iSt2,  71, 


INDEX. 


155 


73;  in  1817,  132;  in  1825, 
143;  increase  of,  68,  71 ;  de- 
fault of  interest  on,  100 ; 
war  debt  of  1812  becomes 
payable,  143;  efforts  to  re- 
fund, 143,  147;  extinguish- 
ment of,  150,  152;  pledges 
in  regard  to,  12,  17,  31,  36, 
39.41,  53,  54,  103,  no,  131; 
amount  held  in  Europe,  66; 
popular  desire  to  pay  off, 
34,  152.  See  Surplus,  Sink- 
ing-Fund. 
Debt,  the  French,  3 ;  amount 
of,  4,  terms  of,  5;  contracts 
concerning,  broken,  6;  pay- 
ment  of,  9;   conversion  of, 

9.  43- 

Debt,  the  Dutch,  origin  of,  5 ; 
interest  on,  4 ;  amount  of,  3, 
5,  6,  7,  42,  55 ;  terms  of,  4, 
42  ;  attempted  conversion 
of,  43,  45,  53-  60,  66;  pay- 
ment of,  49,  53,  56,  60. 

Debt,  foreign,  amount  of,  3 ; 
interest  on,  30;  status  in 
1795,  4->  45-  ^^^  Debt, 
Dutch,  French. 

Debt,  Spanish.     See  Spain. 

Debt,  Revolutionary,  default 
of  interest  on,  i  ;  amount 
of,  3,  69;  terms  of,  16;  ar- 
rears of  interest  on,  11,  16, 
69 ;  reduction  of  interest  on, 
17,  70;  resolution  of  Con- 
gress-concerning, 12. 

Debt,  public.  See  Sinking- 
Fund,  Interest,  Loans. 

Debts  of  the  States.  See  States. 


Deficit  in  revenue.  See  Rev- 
enue. 

Delaware,  25. 

Direct  tax.     See  Tax. 

Discount  on  loans.   See  Loans. 

Domestic  manufactures.  .  See 
Manufactures. 

Duties,  internal.    See  Internal. 

Duties,  tariff.     See  Tariff. 

Duties  on  tonnage.  See  Ton- 
nage. 

Embargo,   the,  74,  76;    effect 

of,  on  commerce,  76. 
England,  relations  with,  31,  32, 

74;  war  with,  68,  76;  peace 

with,  108  ;  British  orders  in 

council,   74;    exchange    on, 

66.     See  Embargo. 
Europe,  negotiations  of  loans 

in,  6,  97  ;  amount  of  public 

stocks  held  in,  66.  See  Debt, 

Foreign. 
Exchange,  on  Amsterdam,  66 ; 

on  London,  66. 
Expenditures,  current,  amount 

in  1791,  30;  in  1795,  zi;  in 

1S01-1802,  52;  in  1802,  58; 

in  1816,  127;   reduction  of, 

in  1821-1822,  141. 

Finance,  plan  of,  in  1812,  77  ; 

in    1814,   102,  105,    109;    in 

1S16,  124,  127,  128. 
Finances,  state  of,  in  1791,  28; 

in  1812,  129;  in  1814,  88,  99, 

100,  105;  in  1815,  loi,  106, 

109,  III. 
Florida  Treaty.     See  Spain. 


156 


INDEX. 


Florin,  value  of,  7. 

Foreign  debt.     See  Debt. 

France,  difficulties  with,  50, 
52,  74.  See  Louisiana,  Pur- 
chase of. 

France,  king  of.     See  King. 

French  debt.     See  Debt. 

Funding  Act  of  1790,  13,  14, 16. 

Furniture,  tax  on,  103,  122. 

Georgia,  State  of,  26. 
Ghent,  treaty  of,  108. 
Great  Britain.     See  England. 

Harness,  tax  on,  103;  revenue 

from,  123. 
Houses,  tax  on  dwelling.     See 

Direct  Tax. 

Import  duties.     See  Tariff. 

Indian  war,  31,  32. 

Interest  on  public  debt,  rate  of, 
4,  5,7,  9,  14,  16,  17,  30,  51, 
70,  78,  86,  91,  93,  113,  117, 
137,  138,  146;  on  Treasury 
notes,  82,  97,  107,  108. 

Interest,  arrears  of,  on  Revo- 
lutionary debt,  amount  of, 
II  ;  how  funded,  15,  16,  69. 

Internal  duties,  system  of  1792, 
30;  of  1794,  32;  of  1813,88; 
100 ;  increase  of,  49,  102, 
III;  revision  of  system  m 
1816,  122;  reduction  of  du- 
ties, 122;  repeal  of,  57,  122, 
129,  136;  revenue  from,  in 
1795.  33;  in  18 14,  89;  in 
18 1 6,  123,  136;  reason  for 
retaining  system  after   war 


of  1812,  128;  total  amount 
collected  from,  129;  resist- 
ance to,  31 ;  odious  nature 
of,  57,  142 ;  payable  in 
Treasury  notes,  100;  oppo- 
sition to  repeal  of,  128.  See 
War  Taxes. 

Internal  improvements,  151. 

Insurrection,  the  whiskey,  31. 

King  of  France,  support  of, 
in  Revolutionary  war,  4 ; 
subsidy  granted  by,  4;  re- 
mission of  interest  on  loans, 
5 ;  guarantees  American 
loans,  3. 

Lands,  tax  on,  51.  See  Direct 
Tax. 

Lands,  public,  price  of,  in  1790, 
34;  sales  from,  in  1816, 123; 
in  1819,  137 ;  appropriated 
to  sinking-fund,  34,  131. 

Legal-tender  law,  106. 

Licenses,  tax  on,  32,  89,  103, 
123;  repeal  of.  See  Internal 
Duties. 

Livre,  French,  value  of,  9. 

Loans :  First  loan  negotiated 
in  the  United  States,  51; 
Louisiana  loan,  61 ;  reliance 
on,  during  war  of  1812,  77; 
loan  of  eleven  millions,  78, 
of  sixteen  millions,  82,  of 
seven  and  a  half  millions, 
88,  90;  of  twenty-five  mil- 
lions, 92 ;  of  ten  millions, 
93 ;  of  six  millions,  95 ; 
loan  of  181 5,  112;  object  of 


INDEX. 


157 


loan  of  181 5,  113;  loan  of 
1820,  137;  of  1821,  137; 
discount  on,  85,  91,  95,  96, 
115,  117;  premium  on,  51, 
137, 138;  proposals  solicited 
to,  84,  90,  93,  113;  condi- 
tional subscriptions  to,  86, 
94;  failure  of,  48,  102,  105; 
commissions  allowed  on,  83, 
90,  94  ;  loans  in  anticipation 
of  revenue,  32,  46 ;  repeal  of 
Acts  authorizing,  120 ;  nego- 
tiation of,  in  Europe,  97 ; 
opposition  to  foreign,  6. 
See  Banks,  Interest,  Debt, 
Treasury  Notes. 

London,  exchange  on,  66. 

Loss  of  certificates  of  debt, 
19. 

Louisiana,  purchase  of,  61, 
72. 

Manufactures,  taxation  of  do- 
mestic, 103,  122;  protection 
of,  126,  150;  state  and  his- 
tory of,  1 26. 

Market  price  of  public  stocks. 
See  Stocks. 

Maryland,  State  of,  25. 

Massachusetts,  State  of,  26. 

Mediterranean  duties,  74. 

Napoleon,  Emperor,  74. 

National  debt.     See  Debt. 

New  York,  25,  28,  84,  98,  99, 
105,  115,  116,  117. 

New-England  States.  Sec 
Banks,  Currency,  Suspen- 
sion of  Specie  Payments. 


New  Hampshire,  State  of,  26. 
Non-intercourse  Act,  75. 
North  Carolina,  25. 

Officers,    foreign,    in    Revolu- 
tion, 10. 
Orders  in  council,  British,  74. 

Payment  of  public  debt.  See 
Debt. 

Pennsylvania,  State  of,  25,  31. 

Permanent  revenue.  See  Rev- 
enue. 

Philadelphia,  city  of,  84,  98, 
100,  105,  115,  116. 

Pittsburg,  city  of,  115. 

Plan  of  finance.    See  Finance. 

Pledges  of  the  revenue.  See 
Revenue,  Debt, Congression- 
al Pledges. 

Postage,  rates  of,  103;  re- 
duced, 122. 

Premium  on  loans.    See  Loans. 

President  of  the  United  States, 
discretionary  powers  con- 
ferred upon,  50,  74  ;  message 
announcing  extinguishment 
of  public  debt,  152. 

Price  of  public  stocks.  See 
Stocks. 

Property,  total  valuation  of,  in 
18 1 4,  92. 

Proposals  for  loans.  See  Loans. 

Protection  of  domestic  manu- 
factures.   See  Manufactures. 

Providence,  city  of,  84. 

Public  debt.     See  Debt. 

Public  lands.     See  Lands. 

Public  credit.    See  Credit. 


158 


INDEX. 


Purchase  of  public  debt.  See 
Debt. 

Redemption    of    public    debt. 

See  Debt. 
Reduction  of  public  debt.    See 

Debt. 
Refunding  of  public  debt.    See 

Debt. 
Regent  of  Tripoli,  74. 
Repeal  of  loan  Acts,  120. 
Revenue,   amount    of    annual, 

i"  1795.  33;  i"  1797,  49;  i» 
1802,  57;  in  181 5,  103;  in 
1816,  123;  state  of,  in  1794, 
32;  in  1808-1812,  75,  128; 
in  1813,  88;  in  1814,  102;  in 
1815,  III  ;  in  1S16,  127;  in 
1819,  136;  permanent,  31, 
33,  103,  123;  sources  of,  in 
1795,  57,  123;  increase  of, 
49,  102;  deficit  in,  32,  51, 
75  ;  in  1813,  88  ;  in  1S14,  91, 
loi,  102;  in  1822,  13S ; 
pledges  of,  36,  46,  54,  103 ; 
bonds,  139,  140;  credit  on 
collection,  75,  iii;  effect  of 
Treasury-note  issue  on,  100, 
112.  See  Tariff,  Loans, 
Surplus,  Internal  Duties. 

Revolutionary  war,  expenses 
of.     See  War. 

Revolutionary  debt.    See  Debt. 

Rhode  Island,  26. 

Richmond,  city  of,  84. 

Salem,  city  of,  84. 
Salt,  duty  on,  89. 
Short,  William,  financial  agent 


of  the  United  States  abroad, 
8. 

Sinking-fund,  of  1792,  35;  of 
1795.  43;  its  provisions,  t,-]  \ 
its  defects,  44,  45,  53 ;  of 
1802,  56,  60  ;  re-organization 
of,  in  1817,  129,  134;  its 
workings,  150;  condition  of, 
in  1817,  129;  appropriation 
to,  in  1792,  35 ;  in  1795,  37. 
in  1S02,  59  ;  in  1803,  61  ;  in 
1817,  131,  143;  appropria- 
tion of  surplus  revenue  to, 
38,  133 ;  simplification  of, 
134;  state  of,  in  1821,  142. 
See  Commissioners  of, 
Treasury  Notes. 

Slaves,  tax  on,  51,  89. 

Snuff,  ta.x  on,  32. 

South  Carolina,  State  of,  26. 

Spain,  debt  to,  origin  of,  10; 
settlement  of,  1 1  ;  purchase 
of  Florida,  74 ;  Florida 
treaty,  146. 

Specie  payments,  suspension 
of,  99,  106,  117,  139;  effect 
on  operations  of  the  Treas- 
ury, 99.     See  Banks. 

Specie,  amount  of,  in  United 
States,  7,  77 ;  exportation 
of,  140. 

Spirits,  tax  on,  30,  103  ;  repeal 
of,  122;  effect  of  tariff  on 
importation  of,  141.  See  In- 
ternal Duties. 

Spoliation  on  Commerce.  See 
Commerce. 

Stamp  duties,  50,  89. 

States,    debts    of    the,    origin 


INDEX. 


159 


and  nature  of,  20 ;  assump- 
tion of,  by  the  Federal  Gov- 
ernment, 20,  27  ;  amount  of, 
22  ;  how  funded,  22  ;  amount 
funded,  23,  27  ;  interest  on, 
30 ;  apportionment  of  the 
expenses  of  the  Revolution- 
ary war  between  the  States, 
23;  policy  in  regard  to,  21, 
27.  See  Balances,  State. 
States,    creditor,    26;    debtor, 

25.  73- 
Stocks,  market  price  of  public, 

13,35,  62,  63;  in  1812,  77; 

83;  in  18 14,  95;  in  181 5,  114; 

in   1817,  121;  in  1825,  143; 

amount  held  in  Europe,  66. 
Sugar,  tax  on,  32,  89 ;  revenue 

from,  \.\   i8i6,   123;    repeal 

of.     See  Internal  Duties. 
Surplus  revenue,  30,  33,  34,  50, 

70,    135,    149:   appropriated 

to  sinking-fund,  -^^  133. 

Tariff  duties,  first  tariff,  30 ; 
origin  of,  30;  increase  of,  30, 
32,  49,  50,  73,  124;  during 
war  of  181 2,  77,  88,  125; 
receipts  from,  in  1789,  30; 
in  1802,  52;  in  1819,  140; 
increase  of  revenue  from, 
in  1800-1802,  52;  in  1816, 
122;  in  1821,  142;  decrease 
of  revenue  from,  in  1819, 
137;  in  1821,  141,  cause  of 
decrease,  138,  140;  the  tariff 
of  1816,  124;  reduction 
effected  thereby  upon  war 
tariff,   125;   protective  char- 


acter of  tariff  of  1816,  126, 
140;  the  tariff  of  1824,  150; 
changes  in,  150;  unstable 
character  of  revenue  from, 
in  1S12,  88;  effect  of  Treas- 
ury notes  upon,  100 ;  credits 
given  on  collection  of,  iii, 
139;  repeal  of,  on  certain 
articles,  151  ;  effect  of,  on 
importations,  140,  151 ;  chief 
reliance  on,  for  revenue,  127, 
129,150.  See  Mediterranean 
Duties,  Manufactures. 

Tax,  the  direct,  51, 89;  increase 
of,  102;  reduced,  123;  re- 
peal of,  123;  revenue  from, 
123. 

Taxes,  war,  89 ;  repeal  of,  129; 
pledges  in  regard  to,  89, 12S. 

Taxes,  in  what  currency  pay- 
able, 29,  118;  pledge  of.  See 
Revenue. 

Taxation,  during  war  of  1S12, 
76;  system  adopted  in  181 2- 
1814,  77,  102;  inadequate 
system  of,  102;  increase  of, 
102  ;  reduction  of,  in  1816, 
122;  revision  of  entire  sys- 
tem of,  external  and  internal, 
in  1S16,  121.  See  Internal 
Duties ;  P'inance,  Plan  of. 

Tender  law,  106. 

Territory,  purchase  of  new. 
See  France,  Spain. 

Tonnage  duties,  74,  78,  125. 

Treasury  notes,  first  issue,  79; 
second  issue,  86 ;  third  is- 
sue, 9r,  97  ;  fourth  issue,  105 ; 
fifth  issue,  107  ;  amount  out- 


i6o 


INDEX. 


standing  in  1814,  87,  98;  in 
1815,  112,  119;  total  amount 
issued,  121;  object  in  issu- 
ing, 79;  security  of,  81,  98; 
advantages  offered  to  pur- 
chasers of,  81,  106,  107; 
new  departure  in  the  issue 
of,  97,  105;  terms  of,  82; 
charged  upon  sinking-fund, 
82,  105;  funding  of,  104, 
107,  112,  116,  119,  121 ; 
receivable  for  subscriptions 
to  loans,  104,  107,  112,  116, 
121 ;  receivable  for  taxes,  81, 
100,  112,  121  ;  as  a  cur- 
rency, 80,  97,  106,  107,  117, 
119,  121  ;  denomination  of, 
97,  107,  119;  withdrawal 
from  circulation,  120,  131 ; 
default  in  payment  of,  100, 
105  ;  interest  on,  82,  98,  107  ; 
depreciation  of,  100;  effect 
upon  revenue,  100, 112.  See 
Sinking-Fund. 

Treaty.  See  France,  Louisi- 
ana, Ghent,  Spain. 

Tripoli,  regent  of,  74. 


United   States,  Bank  of.     See 

Bank. 
United  States,  Constitution  of. 

See  Constitution. 

Virginia,  State  of,  25, 

War,  Revolutionary,  expenses 
of,  20 ;  apportionment  of 
expenses  between  the  States, 

23- 
War  of    181 2.     See    England, 

Plan    of     Finance    adopted 

during;    see   Finance,   Plan 

of. 
War  taxes.    See  Taxes,  Tariff. 
Watches,  tax  on,   103;  repeal 

of,  122. 
Washington,  city  of,  84,  115. 
Whiskey  insurrection,  31. 
Woollen   goods,   tariff   on,  in 

1S16,  124;  effect  of  tariff  on 

importations,  140. 

Yazoo  claims,  133. 


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